“Remain calm, all is well,” screamed Kevin Bacon’s character in the movie Animal House as a horde of citizens runs him down trying to escape the mayhem unleashed at the end of the film.
That image came to mind as a senior official at China’s foreign exchange regulator told a news conference on Thursday that the fears of growing outflows of money resulting from a slowing economy were overblown and that the recent outflows of money from China are not a sign of panic capital flight and that China is confident that it will keep international payments and receipts balanced said Wang Xiaoyi, deputy head of the State Administration of Foreign Exchange (SAFE)
The press conference came a day before China’s central bank cut interest rates for the sixth time since November on Friday. The People’s Bank of China also lowered the amount of cash that banks must hold as reserves in another attempt to jumpstart a slowing economy.
SAFE released data on Thursday showing large capital outflows. In September China’s commercial banks sold a net 729.6 billion yuan of foreign exchange on behalf of clients, down from 807 billion yuan in August but while smaller, these were still capital outflows.
“Current changes (in capital flows) are normal, which should not be regarded as capital flight,” Wang said. The main reasons for recent outflows were a greater willingness by companies and individuals to hold foreign exchange, reported Reuters and moves by firms which were adjusting their foreign debt structures and increasing investment abroad, Wang said.
China’s foreign exchange reserves posted their biggest quarterly decline on record in July-September, as the central bank stepped up intervention to stabilize the yuan and calm sentiment after it unexpectedly devalued the currency on Aug. 11, shocking global markets.
The capital outflows began earlier in the year, as fears of a rising interest rate in the US increased fears that the currency was going to be devalued.