February 2009

China: StanChart tries to explain FX outflow mystery

News that China experienced a severe foreign exchange outflow in the fourth quarter of 2008 came as a major surprise to most analysts and left them searching explanations. According to an initial report written by Stephen Green, Standard Chartered’s head of research for China, the unexplained outflows could have been as much as $240 billion, a figure he described as “a very big, very scary number”.


"The only thing that could protect Beijing from this incoming wave is a significant increase in exchange-rate flexibility. Today"

Stephen Green, Standard Chartered

As Green tried to rationalize the factors behind the outflow, he concluded that the initial estimate was likely to have been too large. And while he said there was a possibility that the country was experiencing some hot outflows, the most likely reason was trade financing.

Green says that the most recent data from...


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