© Reuters
China’s economy is currently grappling with a significant capital outflow, the largest it has seen in years. This situation is causing major distress to its already struggling currency, the yuan, and is raising alarm among authorities as it threatens to worsen the country’s economic challenges.
The yuan is facing pressure from various fronts. Capital has been flowing out of China’s financial markets at an unprecedented rate. This trend has been further exacerbated by global corporations seeking alternatives to China, thereby impacting the financial stability of the country. The resurgence in international travel has also strained the services trade.
On Tuesday, official data highlighted the severity of this situation. The capital account registered an outflow of $49 billion in the previous month alone. This level of capital flight is unprecedented and hasn’t been observed since December 2015.
These factors are collectively causing significant distress to China’s economy and its currency. Authorities are now wrestling with these economic pressures while trying to stabilize the yuan amidst this considerable capital flight.
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