Trump's Tariff Threats Results in Massive Depreciation of Yuan

China experienced record capital outflows of US$45.7 billion in November, driven by global market turbulence following Donald Trump’s U.S. presidential election win, according to data from the State Administration of Foreign Exchange (SAFE). Cross-border payments from portfolio investments totaled US$234.6 billion, while receipts reached only US$188.9 billion, marking the largest monthly deficit on record. The depreciation of the yuan against the U.S. dollar, driven in part by Trump's tariff threats, has added to the pressure. This comes as the U.S. dollar strengthened globally following Trump’s victory, influencing portfolio flows across emerging markets, including China. 

Investor confidence has declined significantly despite Beijing's policy initiatives since late September to stimulate growth amid a property crisis, weak consumption, and persistent deflation. China's policy-driven stock market rally that began in late September has also started to lose steam, reflecting broader uncertainty about the country’s economic trajectory.

The outflows were particularly evident in China’s bond market, with the central bank reporting that foreign institutions reduced their holdings of onshore bonds for the third consecutive month in November. Simultaneously, data from the Institute of International Finance (IIF) confirmed similar trends, noting outflows from both Chinese bonds and equities.

Goldman Sachs underscored the scale of the issue, reporting foreign exchange outflows of US$39 billion in November—up sharply from US$5 billion in October. The firm attributed the surge largely to portfolio investment outflows.

The Stock Connect scheme, a major avenue for foreign investors to purchase mainland shares, also played a role in the capital outflows. The program facilitates forex transactions through Hong Kong, contributing significantly to cross-border yuan movements.

Looking ahead, BNP Paribas noted that China's economic recovery in Q1 2025 will depend heavily on the speed and scale of stimulus implementation announced during the recent Central Economic Work Conference (CEWC). Measures such as increasing the budget deficit, issuing more debt, and loosening monetary policy will be critical, particularly as the market awaits clarity on potential U.S. tariffs.