RMB Rising To Disrupt Capital Outflow

In the past 3 months, along with the market's cooling of RMB appreciation expectations, there have been signs of short-term capital outflow in China.

However, with the continuous rise of RMB in the past week, the trend of capital outflow will not continue.

On the contrary, experts believe that the hot money should be re entered in the future.

In September 7th, the data released by China foreign exchange trading center showed that the central parity of the RMB against the US dollar was quoted at 1 yuan to 6.7799 yuan, and the renminbi rose 39 basis points from the previous trading day.

The central parity of RMB has not only risen four consecutive trading days, but also reached its 3 week high after August 12th.

According to the insiders, although the trend of two-way fluctuation of RMB is more and more obvious, the trend of long-term appreciation will not change.

At the same time, the new wave of domestic capital market may increase the attractiveness of "hot money". Therefore, the trend of capital outflow in the past 3 months will not continue.

In June 19th this year, after the central bank announced further reform of the exchange rate formation mechanism, the two-way fluctuation of the RMB exchange rate was obvious.

Affected by the international market, the renminbi has changed its unilateral appreciation face in the past, and has even depreciated sharply against the US dollar for several consecutive trading days.

Along with the market cooling of RMB appreciation expectations, the signs of short-term capital outflow in China over the past 3 months have become increasingly evident.

According to the data released by the central bank, in May, the foreign exchange financing of new financial institutions dropped from 286 billion 300 million yuan in April to 131 billion 600 million yuan. In June, the increase in foreign exchange holdings of financial institutions further dropped to 117 billion 100 million yuan, a new low since November 2008. In July, the foreign exchange financing of the new financial institutions increased to 170 billion 951 million yuan, but it is still at a low level.

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Zhang Ming, deputy director of the International Finance Research Institute of the world economic institute of the Academy of Social Sciences, said that if the method of "monthly foreign exchange occupation monthly trade surplus monthly FD I inflow" was used, China would face a total short-term international capital outflow amounting to US $34 billion this year from 5 to July, with a monthly outflow of US $11 billion 300 million.

He also used the change of foreign exchange loans to confirm this conclusion.

From 1 to April, foreign exchange loans continued to increase by US $34 billion. From July to July, foreign exchange loans continued to decrease by US $7 billion 300 million.

"The outbreak of the Greek crisis in April has again changed the risk appetite of global investors, and global investors are reentering the deleveraging process, resulting in short-term international capital flows from risky asset markets to risk-free asset markets (the US Treasury bond market)."

Zhang Ming said.

In addition, since March this year, the State Administration of foreign exchange has launched a series of special actions to tackle and crack down on illegal capital inflows, blocking some of the illegal "hot money" inflows.

"However, this short-term international capital outflow will not last for too long."

Zhang Ming pointed out that the US dollar index continued to wander around 82, and the dollar index still has strong downward pressure in the background of early rebound.

Zhang Ming believes that since the resumption of the RMB exchange rate reform in June 19th, despite the strong characteristics of two-way fluctuations, the market generally expects that the renminbi will appreciate at least 3% in the second half of 2010.

Zhao Qingming, a senior researcher at China Construction Bank, said: "from a historical perspective, there is little possibility that any country whose currency is in a long-term appreciation channel will face a huge withdrawal of funds, which has hardly happened."

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In September 7th, Shanghai index rose to 2700 points in early trading, refreshing the high point of the current rally, and closing slightly higher than the previous day's closing.

Zhang Ming pointed out that both liquidity, inflation expectations and valuation levels all showed that China's A share market may usher in a new wave in the second half of 2010.

And the A share market is expected to attract more hot money inflows from bear to cattle.

"If the strength of the current European sovereign debt crisis is not higher than that of the US subprime mortgage crisis, the duration of this short-term international capital outflow will not exceed two quarters (the last fourth quarters of 2008 and the first quarter of 2009).

This means that from the fourth quarter of 2010, we may be able to usher in a new round of short-term international capital inflows.