China: Capital controls appear to have effectively slowed capital outflows - BBH

Analysts at BBH explain that China's capital controls appear to have effectively slowed capital outflows, while under-performance of the equity market and bearish sentiment toward the yuan has discouraged capital inflows.  

Key Quotes

“Reserves rose ($20.45 bln to $3.03 trillion) for a third consecutive month in April as capital controls bit and the dollar's decline flattered the valuation of other currencies in reserves.  Even if capital flows have slowed, trade linkages remain significant.  Its supply and demand for industrial metal may not be the only consideration, but it is a major driver most of the time.  It is expected to report a moderation of both imports and exports (in dollar terms).”

“Slower growth in imports and exports is not inconsistent with a larger trade surplus.  Indeed, that’s what happened as the April surplus rose to $38 bln vs. $35 bln expected and $24 bln in March.  There is also a large seasonal component.  China's trade surplus has widened in April over March for the last seven years and in nine of the past 10.  Tame consumer prices will create scope for stimulus if economic slowing becomes too pronounced, and in the meantime, officials can focus on curbing some of the excesses, including lending and leverage.”