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China Allows More Investment Outflows to Ease Pressure on Yuan
Published on: 2021-04-01
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China last year reported the first annual deficit on the financial account in its balance of payments in four years as regulators allowed more money to flow out of the country to ease appreciation pressure on the yuan stemming from rising foreign investment in the country’s capital markets.
 

The 2020 deficit, excluding reserve assets held by the central bank, amounted to $77.8 billion, although that’s down from an initial estimate of $175.9 billion given in February, according to revised figures for the balance of payments released by the State Administration of Foreign Exchange (SAFE) on Friday. It’s the first shortfall since 2016 when the country had a financial account deficit for the year, excluding reserve assets, of $416.1 billion. The financial account includes domestic ownership of foreign assets –– such as deposits, loans, securities, commodities and direct investment –– and foreign ownership of domestic assets.
 

“The deficit on the financial account excluding reserve assets shows that the accumulation of overseas assets by China’s private sector is continuing,” the administration said in a report accompanying the data. “First, domestic residents have increased their investment in overseas securities, which shows that demand to diversify assets (in investment portfolios) is strong. Second, outbound direct investment has been rational and orderly. Third, banks have increased their deposits and loans overseas, as the current account surplus has provided relatively abundant foreign currency liquidity.”

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