Herbert Poenisch: Recent Capital Flows Through Chinese Banks

2017-08-07 IMI

This short analysis is based on the BIS locational banking statistics www.bis.org/statistics July 2017. Herbert Poenisch, Member of IMI International Committee, Former Senior Economist of BIS The BIS publishes a number of locational banking statistics which are based on the balance of payments principle. Table A2.1 displays the cross-border assets and liabilities of banks resident in a certain jurisdiction, domestic as well as affiliates of foreign banks. Table A4.1 displays the cross-border positions by nationality. Under China this includes Chinese owned banks in China, Hong Kong, Singapore, UK and other reporting countries. Therefore the total assets are much bigger at USD 1767 bn compared with USD 931 bn for banks in China. Finally, table 5 displays the quarterly adjusted changes and a breakdown of cross-border positions of banks in China into currencies, notably the RMB. This table is used for this analysis as capital flows are captured by jurisdiction. According to IMF BOP statistics banking flows are recorded in the third category ‘other flows’. Capital outflows are recorded by an increase in assets or a decrease in liabilities. Capital inflows on the other hand are recorded as a decrease in assets or an increase in liabilities. The structural position of China banks has been liabilities exceeding assets. Chinese banks were net international borrowers and affiliates of foreign banks received funds from their mother banks.

Brief analysis of recent developments:

Cross-border lending continued unabated, notably in other currencies than RMB. This trend of strong lending in foreign currencies has been observed for several quarters, with lending in RMB even in decline in 1Q 2017.
The net liabilities of the banking sector continued to be recorded, with the exception of the 4Q2016 which recorded substantial outflows, due to continued growth of cross-border claims while the liabilities declined markedly.
Looking at the breakdown into currencies, the decline in RMB liabilities was substantial. The declines were recorded during all quarters of 2016, however mostly in the last quarter. The biggest source of cross-border deposits is Hong Kong.

Chinese authorities, the PBoC and the CBRC have already cautioned banks on their cross-border lending funded by onshore RMB deposits, an acknowledgement that banks have fuelled capital outflows.

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Herbert Poenisch: Recent Capital Flows Through Chinese Banks

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