In theory, China\u2019s record-breaking trade surpluses \u2014 $125 billion in June alone \u2014 should boost the currency, as foreign importers scramble for renminbi to pay for all the EVs, solar panels, and AI-related hardware pouring out of Chinese factories.<\/p>\n
In practice, Beijing is trying to ensure the opposite.<\/p>\n
The authorities are focused on plugging holes to prevent money fleeing the country and, potentially, crashing the renminbi. Last year, up to $1 trillion is thought to have left. Securities regulators are cracking down<\/a> on Hong Kong brokerages used as conduits by wealthy individuals to move funds offshore. Big banks and insurers in the territory are vetting their mainland Chinese customers more carefully. Bloomberg reported that HSBC has limited travel to the mainland for its Hong Kong-based private bankers<\/a>.<\/p>\n Downward pressures on the currency, despite surging overseas sales, highlight the tension at the heart of China\u2019s growth model: External strength is overwhelmed by internal weakness, seen in plunging rates of investment and faltering consumption.<\/p>\n The dissonance is reflected in the gap between the confident pronouncements of Chinese leaders \u2014 aimed at an international audience \u2014 and their domestic anxieties. Last week, Chinese leader Xi Jinping pitched his country as the vanguard of the new AI era. Yet his administration is doing everything it can to prevent its own citizens from joining the global AI-driven investment boom, one of the greatest asset run-ups in history.<\/p>\n Indeed, some analysts think the recent tightening over financial outflows is partly designed to avoid a stampede by Chinese investors<\/a> for the Nasdaq.<\/p>\n China\u2019s official GDP data, buoyed by exports, look reasonably solid: In spite of recent weakness, 2026 growth is still expected to meet the government\u2019s 4.5% to 5.0% target. But if the economy is doing so well, why do so many Chinese savers want out?<\/p>\n Capital flight has deep political roots. The country\u2019s entrepreneurs have never forgotten the lessons of \u201cLiberation\u201d in 1949 when the Communists took power, wiping out the landlord class in a bloodbath and seizing their land. To this day, all urban land is owned by the state: Residential property deeds are generally 70-year \u201cland use rights\u201d \u2014 not freehold arrangements \u2014 and nobody knows what will happen when they expire. In spite of legal safeguards, the wealthy still fear expropriation.<\/p>\n Meager investment returns in China also drive money toward the exits. The government keeps bank interest rates low to support corporate borrowers, penalizing depositors. The stock market is a chronic under-performer. Property prices are down 30% or so from their peak.<\/p>\n And the banking system itself is fragile. China has funded its rapid growth through one of the greatest monetary expansions of all time; Michael Cembalest, the Chairman of Market and Investment Strategy at J.P. Morgan Asset and Wealth Management, notes that Chinese banking assets, at $60 trillion, are now equal to around 50% of global GDP. If China fully opened its capital account, he writes<\/a> \u201cpossible outflows could crush the RMB and trigger a collapse in Chinese equity\/real estate markets.\u201d<\/p>\n As a result, vast pools of savings are trapped inside China behind a wall of capital controls.<\/p>\n This arrangement, incidentally, ensures that the renminbi won\u2019t displace the dollar as the world\u2019s preeminent reserve currency any time soon; foreign holders need to know they can get their money in and out of China freely. Indeed, one could make the case that if the renminbi did topple the dollar, we\u2019d all be better off: It would imply a wholesale overhaul of China\u2019s economic model \u2014 and, most likely, its legal and political structures \u2014 in ways that would help redress global economic imbalances, including wildly lopsided trade.<\/p>\n As it is, economies now being swamped by China\u2019s export surge, especially in Europe, are agitating for China to engineer a currency appreciation.<\/p>\n