A country's currency waxes and wanes not only along with its own economy, but also with the relative strength of other nations' currency. Financial markets put money where they think they can make money, and pull it out when those prospects fade. When it leaves en masse the phenomenon is called "capital flight."
In China, which has hemorrhaged billions of yuan in recent months as investors and individuals seek refuge from the country's turbulent economy, official channels are trying to counter the view that capital is fleeing abroad.
"Far from some speculators' claims, China is not a source of trouble but an important engine of global economic growth with its growing demand and investment," according to an unsigned editorial in the quasi-official China Securities Journal. "China registered a growth rate of 6.9 percent last year amid a sluggish global economy, contributing more than 25 percent of global economic growth. Chinese tourists spent 1.2 trillion yuan ($182.4 billion) overseas, while the country's investors pumped 735 billion yuan ($111.7 billion) into other economies."
Yet other data suggest more turbulence ahead for China. For several months now, Chinese officials have been selling a portion of their considerable foreign capital reserves to boost the country's equity markets and to fortify the yuan, the surest way to keep investors from heading for the exits
China has expended roughly $800 billion of its foreign currency reserves since it peaked at almost $4 trillion in mid-2014, notes Albert Edwards, global strategist for Societe Generale. And that burn rate is accelerating.
"Our economists estimate that when FX reserves reach $2.8 trillion -- which should only take a few more months at this rate -- FX reserves will fall below the IMF's recommended lower bound," he said in a note. "If that occurs in the next few months, expect to see a tidal wave of speculative selling, forcing the People's Bank of China to throw in the towel and let the market decide the level of the renminbi exchange rate."
James Henry is an investigative economist and senior fellow at Columbia University's Institute for Sustainable Investment with an expertise in global capital flows.
"At least 40 percent of that trillion dollars coming out of the country is not capital pouring out per se, but Chinese companies reducing their debt load by paying off their foreign borrowing because they see U.S. interest rates rising," Henry told CBS MoneyWatch. "In the long run, that actually makes these Chinese companies more sustainable long term."
"The real uncertainty with China is their attempt to shift their economic growth model from government spending to private domestic domestic consumption, and they have a way to go," he added. "Their household sector is about 45-50 percent of their GDP, as opposed to the U.S. that's at more than 70 percent."
So far, China's strategy has been to portray its slowing growth rate as proof that this shift is underway, while taking pains to reassure global investors and. Premier Li Keqiang also has pledged to keep the yuan stable.
Getting a fix on anything as dynamic and huge as the Chinese economy is fraught with challenges. According to the Institute for International Finance, a global association of the finance industry, in 2015 $676 billion dollars was transferred out of China via both official and unofficial channels. IIF estimated that another $735 billion left emerging markets, as investors sought sanctuary from the rout in the global commodity markets in the safety of the stronger dollar.
"Capital outflows show little sign of moderation," wrote Jean-Charles Sambor and Feng Guo, in a recent note for IIF. "The authorities have tightened the administration of capital controls and are generally trying to discourage outflows. However, we do not expect harsh capital control measures, since the authorities don't want to jeopardize progress towards RMB internationalization and capital account liberalization."
If China's economy is slowing down, it also retains enormous strengths. Growth is likely lower than the official figure of 6.9 percent, but remains far more vigorous than the U.S. and other developed economies. It also runs an enviable trade surplus with the world, while Chinese companies are a growing presence in mergers and acquisitions in the U.S. and in other major economies.
Not everyone buys China's contention that its economy transition is proceeding smoothly. Billionaire investor George Soros expects the country's economy to contract sharply, telling Bloomberg TV that it has taken "too long" to move away from manufacturing- and investment-led growth toward one that emphasizes services and consumer spending.
On the other side of the debate, Jeffrey Sachs, director of the Earth Institute at Columbia University, recently suggested in a Boston Globe editorial that "these days the bankers and hedge fund managers tend to lead panics rather than quell them," noting that the actual "cost of China's financial reversals to the world of jobs and production is still small. Cool heads can keep it that way."
Even as Chinese officials do their best to project confidence to the world about the outlook for their economy, the country's migrant workers are taking to the streets in increasing number to demand back wages, according to a report by the China Labor Bulletin cited by Reuters.
CLB reports that in December and January there were 774 strikes around China, compared to 529 in the previous two months. "Usually the Lunar New Year is a time for migrant workers to return home with gifts for relatives and for them to show they have done well, but instead workers are pushing for their back wages," said Peter Kwong, a professor of Asian-American Studies at Hunter College.
Heightening the tension over China's economic slowdown are its problems with air pollution and water quality problems. "Environmental quality is the major source of the rising middle class's dissatisfaction and failing to improve it will only accelerate the ongoing brain-drain and capital flight," said Taisu Zhang, a professor of Chinese law at Duke University. "And it is the brain-drain the government is more concerned with."