As the Chinese economy slows down and the renminbi devalues, people are pulling their money out of China. But it’s not until you see how much money is fleeing China that you realise just how dramatic the intensity of capital flight has become.
Here is a chart from CLSA, in billions:
That’s more than $200 billion per quarter, as people unwind their purchases of renminbi, repay loans in dollars or otherwise funnel cash out of the country.
In total, during 2015, $676 billion left the country, according to the Washington-based Institute of International Finance (IIF). To put that in perspective, that is the equivalent of the entire GDP of Switzerland — including its banking sector — suddenly getting on a plane and leaving the country. Or two entire economies the size of Malaysia just disappearing from China in 12 months.
Before the year started, the IIF estimated that only $540 billion would leave (that would still be like all of Argentina disappearing).
The situation is worse than expected, according to the IIF, because people are sneaking their money out in secret in order to not be detected:
In countries that do not have open capital accounts, investors sometimes circumvent official barriers to financial transactions, for example through over-invoicing of trade or cash transactions through the financial system. This can lead to sizeable amounts of transactions that cannot be accounted for, which are captured in the BoP [balance of payments] as “net errors and omissions.” In the current period of EM stress, this BoP component can be viewed as a proxy for capital flight. We thus add total net errors and omissions to identified net capital flows in order to obtain a more comprehensive estimate of net outflows. … China in particular has seen a sharp swing in errors and omissions in recent quarters. Our latest estimates suggest that unrecorded capital inflows averaging $56 billion from 2010-2013 turned into unrecorded capital outflows of $104 billion in 2014 and $216 billion last year. Altogether, capital outflows from China, including errors and omissions, are estimated at $676 billion in 2015.
The IIF published this historic chart of capital flows in Asia, showing how dramatic the reversal was last year — basically wiping out the previous four years of inflows:
And here are the scale of “errors amd ommissions” (ie cheating):
You can see that cheating increases during times of capital flight.