According to data compiled by Bloomberg, China saw its most significant capital flight in the last 8 years in the month of August. The world’s second-largest economy saw outflows of $49 billion last month, the highest since December 2015. The development could spark trouble for the Chinese yuan (CNY). The USD/CNY exchange rate is trading at a 17-year high.
Markus Thielen, head of research and strategy at Matrixport, said, “The U.S. economy is strongly expanding while the Chinese economy appears to have weak growth momentum.”
Thielen further added that China’s post-Covid rebound was underwhelming. He stated, “Authorities have not implemented enough countercyclical measures to support the economy. Chinese companies are suffering from weak margins in the absence of growth. “
If the current trend continues, Thielen believes Chinese firms could look overseas for better investment opportunities. However, given the country’s strict capital controls, this option might not prove lucrative.
Where is China’s capital flowing to?
According to some experts, Bitcoin (BTC) could see a significant inflow of Chinese wealth, as overseas investment might not be an option for Chinese businessmen. Thielen noted that “The familiarity of Bitcoin by Chinese investors in times of a weakening domestic economy could see substantial inflows into Bitcoin over the next few months.”
BitMEX co-founder Arthur Hayes also shares a similar sentiment about outflowing Chinese wealth. He believed Chinese wealth might be flowing into gold and paying U.S. dollar offshore debt. Hayes mentioned that as long as the Japanese yen weakens, the Chinese yuan must weaken. This is to keep exports competitive. However, he does hope some of the capital flows into Bitcoin (BTC).
A similar narrative played out in 2016 when Chinese investors began buying Bitcoin (BTC) to push wealth out of China. On the other hand, Singular Research’s crypto analyst Edward Engel believed that Chinese capital would not flow into Bitcoin (BTC). Engel stated, “China’s gotten pretty savvy when it comes to stopping outflows so I’d be surprised if people were using older ways.”