Capital Outflows Hurting China’s Economy

The People’s Bank of China is desperate to stimulate a slowing economy, but flagging enthusiasm for Chinese assets is blunting its traditional monetary policy tools and forcing the central bank to adopt different tactics.

Sustained capital outflows have reduced the effectiveness of the PBOC’s open market operations to such an extent that the central bank all but abandoned them in early December, market participants say, following its surprise cut in guidance lending rates the previous month.

Open market operations – injecting and withdrawing funds from the interbank market on a weekly basis – are a transparent way of managing the money supply and guiding interest rates.  Tinkering with short-term liquidity has proved ineffective, however, in offsetting the deeper capital outflows that China is facing.

CNBC

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