China’s foreign exchange reserves have dropped for four straight quarters, leading to a fresh round of warnings about capital outflows.
Interpreting capital flows has long been a favourite parlour game for Chinese economy watchers. An analyst’s view on “hot money” outflows is often an indication of his or her broader stance towards the world's largest economy.
For those who believe China’s economic slowdown is worsening and risks from spiralling debt and wasteful investment are propelling the country toward a financial crisis, the spectre of capital flight lurks behind each new data point. They view capital outflows as a sign of waning confidence in China, and they warn that outflows will drain liquidity from the domestic economy, making it harder for companies and local governments to raise funds.