China Experiences Largest Capital Flight in Seven Years as $5.1 Billion Leaves Stock Market: Goldman Sachs
According to Goldman Sachs, China is currently facing the largest capital flight since 2016 due to its struggling equities markets. The report reveals that foreign investors sold off a net total of $3.3 billion in domestic Chinese stocks, resulting in total outflows of $5.1 billion for October.
The depreciation of the yuan against the dollar and higher interest rates in the US are identified as contributing factors by Goldman analysts. The report suggests that policymakers in China prioritize confidence and stability in foreign-exchange management over capital outflows and yuan depreciation.
Goldman also highlights that China experienced a net outflow of $75 billion in September, marking the largest since 2016. This follows a $42 billion flight the previous month.
Chinese Government Takes Action to Prevent Contagion
In response to the country’s property crisis triggered by Evergrande’s collapse, the Chinese government has implemented measures to prevent contagion. These include assisting commercial banks and rural financial institutions in replenishing capital and disposing of bad assets and loans.
Furthermore, local governments have issued special-purpose bonds to support smaller banks in raising funds. To contain contagion, Chinese banks are now prohibited from operating outside their designated regions.
Hot Take: China’s Struggling Stock Market Faces Major Capital Flight
China is grappling with significant capital flight as $5.1 billion exits its struggling stock market, marking the largest outflow since 2016. Foreign investors have sold off a net total of $3.3 billion in domestic Chinese stocks due to factors such as higher interest rates in the US and the depreciation of the yuan against the dollar. In response to the ongoing property crisis triggered by Evergrande’s collapse, the Chinese government has taken steps to prevent contagion and support financial institutions. These measures include capital replenishment, disposal of bad assets and loans, and restrictions on bank operations. The situation highlights the challenges faced by China’s equities markets and the efforts being made to stabilize the economy.
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