Balance of Payments (Q2)

China’s balance of payments data for Q2 show substantial outflows on the financial account. But this does not mean that capital has been fleeing the country. Instead it is a reflection of the fact that diminished appreciation expectations have been reflected in a surge in foreign currency deposits onshore. Upwards pressure on the renminbi has eased as a result. But this won’t continue indefinitely. We continue to expect the renminbi to appreciate over the quarters ahead.