The Turnaround in Private and Public Financial Outflows from China

Thomas Klitgaard and Harry Wheeler

No 20160509, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: China lends to the rest of the world because it saves much more than it needs to fund its high level of physical investment spending. For years, the public sector accounted for this lending through the Chinese central bank’s purchase of foreign assets, but this changed in 2015. The country still had substantial net financial outflows, but unlike in previous years, more private money was pouring out of China than was flowing in. This shift in private sector behavior forced the central bank to sell foreign assets so that the sum of net private and public outflows would equal the saving surplus at prevailing exchange rates. Explanations for this turnaround by private investors include lower returns on domestic investment spending and a less optimistic outlook for China’s currency.

Keywords: central banks; reserves; investments spending; saving; balance of payments; current account; financial account; China; foreign exchange (search for similar items in EconPapers)
JEL-codes: F00 G1 (search for similar items in EconPapers)
Date: 2016-05-09
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