What is a Trillion Dollars in Yuan?

According to the Investor’s Business Daily Chinese capital outflows reached $1 trillion last year. Which brings to mind what is a trillion dollars in Yuan? As exchange rates vary this number may go up or down but the current exchange rate is 6.5 Yuan to the US dollar so six and half trillion Yuan were converted to foreign currencies and fled China in 2015.

China’s capital outflows jumped in December, with the estimated 2015 total reaching $1 trillion, underscoring the scale of the battle facing policymakers trying to hold up the yuan amid slower economic growth and slumping stocks.

The entire year’s estimated trillion-dollar total was more than seven times 2014’s $134.3 billion, a record for Bloomberg Intelligence data dating back to 2006.

In addition to capital exiting the economy, exporters are holding funds in dollars instead of converting them to yuan, said Tom Orlik, Bloomberg’s chief Asia economist in Beijing.

“The immediate trigger for a pickup in capital outflows toward the end of the year was the People’s Bank of China’s poor communication over its shift in currency policy,” said Mark Williams, chief Asia economist for Capital Economics Ltd. in London, who previously worked on China issues at the U.K. Treasury.

“Outflows are likely to remain strong because the People’s Bank still has not been able to generate confidence among investors that it knows what it’s doing or that it’s able to achieve its policy objectives.”

As rich Chinese move their wealth offshore they sell Yuan and buy dollars, yen, euros or other currencies. And the Yuan goes down in value.

A Year of USD/RNB

Bloomberg Business has a graph that shows the last 12 months of USD/CNY exchange rates. A year ago a dollar got you 6.2 to 6.25 Yuan and as recently as a month ago the exchange rate was 6.59 Yuan to the dollar.

It turns out that five years ago the exchange rate was about 6.5 Yuan to the dollar and the Yuan steadily fell to bottom out at 6.04 to the dollar at the end of 2013 as the USD rallied against all other currencies.

Why Is Wealth Leaving China?

The Wall Street Journal discusses China’s capital outflow quandary.

As China’s foreign exchange hoard drops by hundred-billion-dollar chunks, a key question for economists and investors is what China’s bottom line is and what Beijing can do to defend it.

China’s net foreign-exchange reserves have fallen by over $600 billion from their mid-2014 peak of $3.99 trillion as Beijing intervenes to prop up its weakening currency. China’s capital outflow was as much as $1 trillion last year by some estimates if trade surpluses and inbound investment flows are included.

Some put Beijing’s red line at $3 trillion, which may not be far off if reserves fall another $200 billion by early March, as some forecast. China’s January figures are due out on Sunday.

Trying to assess what Beijing is thinking takes on added importance as China’s problems batter global markets, commodity producers and confidence. China’s central bank and foreign exchange watchdog didn’t immediately respond to questions.

Whether Beijing can stem the outflow soon is an open question. Economists say Beijing is working particularly hard to keep ordinary households from losing confidence in the yuan.

The problem for China is that a falling Yuan is a self-fulfilling prophecy. Wealthy Chinese take money out of the country because they fear that the currency will devalue as the economy weakens and by their actions cause both a weaker currency and a cheaper Yuan.