As the Chinese government is loosening its COVID curbs, and some analysts expect China will face new conundrum in the post-pandemic era: capital outflows.

According to Deutsche Welle, the COVID pandemic has done an invisible favor for the Chinese government – keeping a lot of money at home.

But now when the expectations for a full reopening are rising after the government relaxed its pandemic prevention policy, the capital flight could be Beijing’s next trouble.

The Chinese government has strict controls on cross-border money transfers by citizens, which cannot exceed $50,000 in a year.

Even so, Chinese outbound tourists spent $255 billion abroad in 2019. It helped boost business in foreign service and luxury goods — from resort hotels in Thailand to designer handbags in Paris.

A calculation from Reuters indicates that, without this expenditure, about $765 billion could be saved in the three years of the COVID pandemic.

In addition, many wealthy Chinese families send their children to Western schools and universities, which is also a large expense.

Though China’s foreign exchange reserves remain high, at above $3 trillion at the end of 2021, the country is still intervening to prevent the cash outflow risk.

Since the COVID pandemic, China imposed harsh quarantine regulations and passport controls, which have prevented people from traveling abroad.

Chinese student enrollment in the U.S. fell to 290,000 in the school year 2022, down 22% from its peak two years earlier.

According to Reuters, the Chinese authorities may try to retain some outbound travel restrictions to curb cash outflows due to the estimated high demand for pent-up overseas consumption by the public.

For the middle class in China, many may not be optimistic about their own prospects at home.

The Henley Global Citizens Report estimates that 10,000 high-net-worth individuals will leave China this year, the most after Russia.

There are many reasons for them to worry.

The U.S. Federal Reserve’s interest rate hikes are putting pressure on the yuan.

At present, the mainland economy is rapidly losing momentum. In November, orders for China’s manufacturing sector dropped 8.7%, which is threatening its exports.

And local governments are strapped in a financial crunch. They are worried about a decline in foreign investment and have scrambled to organize business trips abroad to boost confidence.

The McKinsey China Consumer Report 2023 pointed out that recent macroeconomic pressures have affected Chinese consumers.

According to a McKinsey survey of Chinese consumers, 58% of urban households want to “save some money for emergencies,” the highest level since 2014. The savings rate has also been climbing.

Though the loosening of the COVID restrictions could trigger more capital outflows from China, its costs may still be smaller than continuing the lockdown.

Reuters analysis said that the longer China waits for its full reopening, the greater the price it would pay.

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