China’s large capital account outflow raises concern

Chinese Forex reserve is declining at fastest pace on record. Chinese forex reserve is still the largest in the world and reasonably high enough, however if it keeps falling steadily it is likely to raise concerns over growth and recovery ahead.

Key concerns -

• China's forex reserve is down almost 7.5% from its peak in June 2014, which amounts to $ 300 billion. In June 2015, it declared its forex reserve at $3.69 trillion. These drops came in the back of high trade surplus, which means large sum of money is either going out of Capital account or PBOC is using heavy intervention to keep the Dollar/Yuan stable.
  
  
• Moreover this forex reserve drawdown came in the back of high trade surplus. China experience trade surplus of about $260 billion for first half of the year, whereas Forex reserve shrank by $120 billion, suggesting an outflow of $380 billion for first half of the year in capital account.

This massive outflow remains a concern over the medium term. While money flies out, Peoples Bank of China (PBOC) has kept the Yuan steady against dollar, with -0.03% depreciation in last one year.