China, Hong Kong trade gap jumps to record as outflow pressures mount

August 25, 2016 6:49 AM EDT

People's Liberation Army military vessels station at a naval base, with the financial Central district seen at background, during an open day celebrating the 19th anniversary of Hong Kong's handover to Chinese sovereignty from British rule, in Hong Kong J

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HONG KONG (Reuters) - The gap between China's imports from Hong Kong and the city's exports to the mainland jumped to its biggest on record in July, a sign that capital outflow pressures are mounting.

While Hong Kong's statistics showed exports to China fell 6.2 percent in July, Chinese customs data showed imports from Hong Kong jumping 122.9 percent. That put the gap at $2.4 billion, its biggest since 2006 when data was available. The previous peak was $2.23 billion in May.

Statistical discrepancies have always existed between China's and Hong Kong's respective cross-border trade numbers, but a spike usually suggests that speculators are moving funds from the mainland because of a weakening currency.

China has been working hard to prevent funds from flowing out of the country as capital flight adds to the downward pressure on the yuan , which has already lost more than 3 percent against the dollar since April.

But the latest spike in trade data discrepancy indicates that outflow pressures are mounting.

"It shows that there is more outflow pressure," said Julia Wang, Greater China economist at HSBC.

"You can argue that it's a reflection of capital outflows, which the Chinese authorities say is actually backed by gold trade, but regardless of whether it's backed by gold, it's capital moving out of the country on the import side of things," she said.

Another sign of capital outflow pressure has been the southbound leg, or the Hong Kong market bound side, of the stock connect link, where net aggregate usage of the quota reached more than 80 percent over the last two months before the authorities scrapped the limits.

(Reporting by Saikat Chatterjee and Venus Wu, Additional Reporting by Kevin Yao in BEIJING; Editing by Jacqueline Wong)

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