Will Beijing target the tourism deficit? China’s reserve requirement cut last week failed to provide much of a lift as it was more about replacing hot money outflows than adding new money. It also helped to bring into focus the central bank’s tricky position: In an environment of capital outflows how do you fine-tune policy so that both a credit crunch and currency crunch are avoided? Without signs the economy is regaining momentum, investors should watch out for unexpected policy moves — such as meaningful currency depreciation or new measures to trap capital inside its borders. Concerns will be compounded byterrible trade figures released at the weekend, with exports unexpectedly down 3.3% in January from a year earlier and imports falling almost 20%. After running the reserve-reduction numbers, analysts poured cold water on last week’s half-percentage-point cut, as it merely tops up liquidity after recent outflows. Fitch Ratings calculates the 570 billion yuan ($91.4 billion) freed up almost equals exactly the 575 billion yuan in net capital outflows in 2014. The dilemma for the People’s Bank of China (PBOC) is how to keep liquidity flowing without prompting more outflows. If it loosens aggressively during a period of capital outflows and dollar strength, this could just help facilitate capital flight. Expectations of a weakening yuan would also have the same effect. Here, the consensus remains that authorities will be resolute in defending the loosely pegged exchange rate, with Bank of America saying it expects the PBOC will stabilize the rate in order to stem capital flight. Keeping the currency stable is widely viewed as a key policy objective of Beijing as it seeks to elevate the yuan to a means of settlement for international trade and even as a reserve currency. What’s more, Chinese corporations hold a sizeable amount of foreign-currency debt. However, analysts warn that pressure is building on the exchange rate. TD Securities estimates monetary conditions in China are the tightest in a decade, with a real effective exchange rate at 15-year highs and growth in credit at decade lows. January’s decline in exports will put the yuan’s level under renewed scrutiny. Beijing will find little help abroad, as much of the world seems to be using lower oil prices to cut rates and let currencies slide. Already this year, central banks in at least 12 countries have moved to cut rates. If China’s loosely pegged exchange rate keeps rising, it could be forced to throw in the towel with a significant depreciation, although this still looks like a long-shot scenario at this stage. Another possibility is authorities will step up efforts to trap liquidity inside China. We have already witnessed this in Macau. The gambling enclave has now recorded its eighth months of declining gaming revenues after a clampdown on the movement of illicit funds. Beijing has also been proceeding with efforts to clamp down on overseas property purchases by mainland Chinese that skirt capital controls. Another area authorities might turn to is China’s ballooning tourism deficit, due to its huge size and focus on luxury spending. This diverts both money and much-needed domestic consumption overseas. Official statistics revealed that last year outbound Chinese tourists spent a record $164.8 billion overseas in 2014, making them the world’s biggest spenders. This lead to a shortfall of $100 billion when compared to the spending by inbound tourists, up 50% from a year earlier. Tourism spending might seem innocent enough until you appreciate not just its scale, but how much is related to luxury goods. This also means it dovetails nicely into President Xi Jinping’s anti-corruption and anti-extravagance campaign. HSBC estimates tourists make-up 44% of luxury sales globally, and Chinese account for half of that amount. The scale of luxury-good spending has also been featured recently in the Chinese press. According to a research-institute report last week, Chinese consumers purchase 76% of their luxury goods while overseas. Lower taxes overseas are one attraction, and weak foreign currencies add to the bargain. An interesting statistic is that this prodigious shopping is carried out by just that 4% of the population who have a passport. This might mean, as HSBC argues, there is a lot more shopping growth to come as more Chinese get passports. Another possibility is that this 4% is doing shopping for more than just themselves. If you go on Alibaba’s BABA, +0.56% Taobao e-commerce site, you can see there is a huge business in parallel imports or the reselling of branded luxury goods, with literally millions of merchants involved. Already regulators have been pressing Alibaba over the sale of counterfeit products Hitting this re-sale trade at home could be one way to lower China’s tourism-spending deficit and make life a little easier for the PBOC. Of course, it might be simpler to just rebalance by depreciating the yuan. But if you look at Beijing’s past policy, blunt administrative measures to trap liquidity would be less of a surprise. Craig Stephen