According to the Wall Street Journal, "The flow of funds out of Asia anticipating higher U.S. interest rates has not yet hammered China as badly as some of its neighbors. That’s largely because China imposes broad controls on capital, limiting foreign investments in stocks, bonds and property as well as the money Chinese investors can send overseas".But those controls are not watertight, and recent data suggests that capital is leaving the country. In July, China’s banking system had a second straight month of foreign-exchange outflows, with net foreign currency sales totaling 24.5 billion yuan ($4 billion). That means banks were net sellers of dollars, an indication of money leaving the country.
"The expectation of higher rates in the U.S makes it less attractive to hold funds in foreign currencies, including the yuan, changing the dynamics of currency hedging for companies and investors. If China’s exporters decide to keep their earnings in dollars rather than convert them into yuan, that reduces banks’ foreign-exchange purchases".
"China’s currency, which trades within a narrow band set by the central bank, has yet to be shaken by these outflows. The country runs a trade surplus, which means it is not reliant on foreign funding to pay for its imports. That puts it in a stronger position than India or Indonesia, whose currencies have been pushed significantly lower in recent weeks.
China also suffers if its more vulnerable neighbors in Asia hit a speed bump, as that hurts an increasingly important market. China exported $135 billion to Southeast Asia in the first seven months of the year, compared with $200 billion to the U.S. and $188 billion to the European Union".
"The expectation of higher rates in the U.S makes it less attractive to hold funds in foreign currencies, including the yuan, changing the dynamics of currency hedging for companies and investors. If China’s exporters decide to keep their earnings in dollars rather than convert them into yuan, that reduces banks’ foreign-exchange purchases".
"China’s currency, which trades within a narrow band set by the central bank, has yet to be shaken by these outflows. The country runs a trade surplus, which means it is not reliant on foreign funding to pay for its imports. That puts it in a stronger position than India or Indonesia, whose currencies have been pushed significantly lower in recent weeks.
China also suffers if its more vulnerable neighbors in Asia hit a speed bump, as that hurts an increasingly important market. China exported $135 billion to Southeast Asia in the first seven months of the year, compared with $200 billion to the U.S. and $188 billion to the European Union".
