PERSISTENT capital outflows from China since mid-2014 were probably driven more by local companies paying down their dollar-denominated debt — in anticipation of a stronger U.S. currency — than investors ditching assets, according to Bank for International Settlements (BIS).

    The outpouring of China’s currency “led to two different narratives,” researchers for the Switzerland-based institution said in a report Sunday. “One tells a story of investors selling mainland assets en masse, the other of Chinese firms paying down their U.S. dollar debt. Our analysis favors the second view, but also points to what both narratives miss — the shrinkage of offshore yuan deposits.”

    BIS, which warned in December that emerging-market nations may be borrowing too much too quickly, examined a record US$175 billion net decline in cross-border capital to China in the July-September period of 2015. Of that, the study showed just US$12 billion of this was official reserves outflows and the remainder was private outflows.

    Almost three quarters of the US$163 billion in non-reserve outflows was comprised of factors including a reduction in yuan deposits, which was counted as US$80 billion in capital leaving the country, as well as local Chinese companies directly repaying US$34 billion in foreign currency debt to offshore banks and US$7 billion to local banks. (SD-Agencies)