Hot Money Seen Flowing Out of China As Yuan Slides

China’s four major state-owned banks have seen deposits fall by 400 billion yuan ($63 billion) in the first ten days of December, hurting their liquidity and their ability to make new loans, according to Taiwan’s Commercial Times.

The yuan rebounded Friday after 12 consecutive days of depreciation because China’s central bank began selling off foreign currencies in an effort to stabilize the yuan.

The plunge in deposits at Bank of China, China Construction Bank, Agricultural Bank of China and Industrial and Commercial Bank of China was due to the yuan’s depreciation, slowdowns in foreign exchange funds outstanding and capital outflows, according to a source quoted by the 21st Century Business Herald.

The increase of funds outstanding for foreign exchange was less than 100 billion yuan ($15.8 billion), far less than the average monthly funds of 275 billion ($43.3 billion) seen throughout the past few years, said Peng Wensheng, top economist at China International Capital Corporation, indicating that foreign capital is being rapidly withdrawn from China.

During the first 10 days of December Bank of China’s deposits fell by 200 billion yuan ($31.5 billion), making it the “big four” bank with the biggest reduction.

The loan-deposit ratio at commercial banks has reached 67% on average, according to the 21st Business Herald, which is close to the limit set by China’s banking regulations. Falling deposits have dimmed the credit outlook.