China's capital outflows worsen in April, pressuring the yuan

China saw a big increase in money leaving the country in April. This shows that the yuan, China's currency, is facing challenges because the country's economy is slow, and there's uncertainty about the US Federal Reserve's interest rate policies.

New data released on Friday revealed that local companies bought the most foreign money from banks since 2016.

At the same time, exporters held back from changing their dollars to yuan, and people in China bought more foreign money for travelling overseas.

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These things show that people are being careful with the yuan. China's interest rates are lower than those of the US dollar, which makes the US dollar more attractive.

Even though the People’s Bank of China is trying to keep the yuan's value steady, it's hard because no one is sure when or how much the US will cut its interest rates this year.

Economists and strategists from Goldman Sachs, including Xinquan Chen, said in a report that they think policymakers will keep strong control to stop the yuan from losing value, by setting the yuan's value and controlling how much foreign money is available, because there's a lot of pressure for money to leave the country.

In April, Chinese banks sold $36.7 billion more foreign money than they bought for their customers. This is the most since December 2016, according to data from the State Administration of Foreign Exchange.

Investors liked foreign money assets, showing they are more hopeful about things not in yuan.

Also, the amount of money coming into China from other countries didn't help the yuan, because there was more Chinese money spent on buying foreign money, which is rare.

After all, China usually makes more money from selling things to other countries than it spends. Also, the money spent on people from China travelling to other countries increased.

Dan Wang, who is the main economist at Hang Seng Bank China Ltd., noticed that exporters would rather keep foreign money instead of yuan because they think China's economy won't grow much, and because there's a lot of money leaving the country.

Chinese banks also sent a record $29.5 billion to other countries for their customers to use for investing directly.

This includes foreign countries investing in China and China investing in other countries.

Bloomberg analyst Gerard DiPippo said that the reason for less money coming into China might be that US interest rates are higher, not that other countries are less interested in China.

He said that companies from other countries, including Chinese companies with offices in Hong Kong, might have moved their money to other countries to make more money.

(With inputs from Bloomberg)