A record $1 trillion or so has fled China in the last year or so. Official reserve data is masked, so it’s difficult to pin a precise number.

We do know the official monthly drain is the smallest since June, but Daiwa Capital Markets believes PBOC Using Stealth Intervention as Reserves Decline.

The People’s Bank of China may have bought foreign currency from local banks, used the forwards market to prop up the yuan and asked the nation’s sovereign wealth fund to liquidate overseas assets, Daiwa analysts Kevin Lai and Junjie Tang wrote in a note on Tuesday. While Lai didn’t provide any direct evidence in the note, he said in an e-mailed response that his conclusions were based on a “logical deduction.”

China’s foreign-exchange reserves, the world’s largest currency hoard, shrank by $28.6 billion last month, the smallest decline since June, to $3.2 trillion. That was lower than the $40.9 billion decrease predicted in a Bloomberg survey of economists, and compares with December’s record drop of $108 billion as the monetary authority supported the yuan.

“As everyone is watching the foreign-exchange reserves number so carefully, it is important for the government to show a nice number,” said Hong Kong-based Lai. “Otherwise there will be market panic.”

The monetary authority launched a two-pronged attack on yuan speculators earlier this year, choking outflows from the mainland while mopping up the currency offshore. The nation’s defense of the yuan depleted its foreign-exchange reserves by $513 billion last year, the first annual drop since 1992.

Bloomberg Intelligence estimates that a record $1 trillion fled overseas in 2015. The official foreign reserves data don’t necessarily give a comprehensive picture because non-PBOC institutions may absorb flows, Goldman Sachs Group Inc. economists wrote in a March 7 note.

Stock Market Intervention Back as Well

Intervention doesn’t work, but that simple fact never stops central banks from trying.

Along with currency intervention, the China Equity Intervention Trade Is Back as State Funds Battle Bears.

During each of the past six days, the Shanghai Composite Index has recorded intraday losses before rallying to end the trading session higher, with index heavyweights such as Industrial & Commercial Bank of China Ltd. and PetroChina Co. leading the rebound. Some local branches of the securities regulator asked listed companies, mutual funds and brokerages to stabilize the market during annual parliamentary meetings this month, two people with direct knowledge of the situation said last week.

The resumption of late-day gains, a common occurrence during the height of the government’s market rescue campaign in July, has presented traders with a quandary: Worsening economic data suggest stocks should fall, but state intervention provides an opportunity to profit from short-term rallies. It’s yet another sign of how government meddling has undermined the leadership’s own pledge to increase the role of market forces in the world’s second-largest economy.

Shanghai Index $SSEC

$SSEC Weekly

The above chart is from yesterday’s close. The Shanghai Index is currently down about 70 points (2.40%), intraday, to to 2,832.

Intervention that started in July between 3,500 and 4,000 has not done a bit of good. China supposedly backed off the intervention trade but is now back at it.

Mike “Mish” Shedlock