China’s rush of capital outflows may not be a huge red flag, if you look at where the funds flowed.

Sleuthing by the Bank for International Settlements (BIS), which acts as a bank for central banks, suggests a big chunk may have gone toward unwinding a once-faddish investment: Buying yuan, also known as the renminbi, offshore as a play on expectations the Chinese currency would continue to appreciate against the dollar as well as the mainland’s slightly higher interest rates amid a yield-starved world.

Expectations have now shifted toward renminbi depreciation, making holding the currency relatively unattractive. Of the around $175 billion decline in cross-border loans to China in the third quarter, nearly half came from offshore depositors backing out of the yuan, the BIS said, citing data from banks reporting to it.

While analysts have speculated that investors have been selling Chinese assets and sending the fund offshore, the BIS downplayed that as a source of outflows.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

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