China may face sustained capital outflow pressure, top economists warn

South China Morning Post

31-03-2025

China may continue to face capital outflow pressures over the next two years – though on a smaller scale compared to previous low periods – according to two prominent economists, who also called on the central bank to control new forms of capital flight such as digital assets and cryptocurrencies.
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Zhang Ming, deputy director of the Chinese Academy of Social Sciences' Institute of Finance and Banking, and researcher Chen Yinmo of the National Institution for Finance and Development jointly expressed their concerns in a social media post on Saturday.
They blamed the outflows on uncertainties over the US Federal Reserve's monetary policy, the
tariff blitz under US President Donald Trump, geopolitical tensions and China's weak consumer sentiment.
'China's capital outflow pressures in the next couple of years will be reflected through weak foreign direct investment versus ongoing overseas direct investments, [or] the use of Chinese capital due to lower interest rates for overseas investments,' the pair noted in the article posted on Zhang's official social media account.
Quoting data from the State Administration of Foreign Exchange, they said that China's capital account – the national record of net investment flows – posted a deficit of US$496.2 billion in 2024, a historic high.
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'For the same year, China's international reserve was reduced by US$62.3 billion – the first time since 2019,' the two wrote, noting that 'the yuan was undergoing
depreciation pressures against the US dollar last year'.
China has undergone 'heavy' capital outflows twice in the 21st century, the economists noted, the first period between 2015 and 2016 – when the average capital account deficit was US$300.6 billion – and the next between 2020 and 2024, when the average was US$216.9 billion.