China’s balance of payments data for Q2 show substantial outflows on the financial account. But this does not mean that capital has been fleeing the country. Instead it is a reflection of the fact that diminished appreciation expectations have been reflected in a surge in foreign currency deposits onshore. Upwards pressure on the renminbi has eased as a result. But this won’t continue indefinitely. We continue to expect the renminbi to appreciate over the quarters ahead.
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