China's capital outflow increased by around $104 billion in the first six months of the year, according to a government economic report that was published on Thursday. If the situation is not remedied soon, it may contribute to the slowdown of the economy.

China's foreign exchange sales were significantly higher than its purchase in the first half of the year. The State Administration of Foreign Exchange revealed that around 5.30 trillion yuan worth of foreign money was bought. At the same time, the authorities reported that sales of foreign money was almost 6 trillion yuan. The mid-year foreign exchange transactions resulted in a deficit of almost 650 billion yuan. In contrast, the deficit in the second half of 2014 was around 384 billion yuan.

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Economic analysts believe that if the deficit trend is allowed to go on for longer periods, it will have a negative effect on the Chinese economy. They say prolonged deficit may hurt the local market that suddenly finds itself less liquid. Another effect that the deficit may bring is that the yuan will be pegged lower against other foreign currencies.

A spokesperson for the foreign exchange authorities, Wang Chunying, said that even if there was a spike in the amount of capital leaving China, recent foreign transactions are slowly achieving equilibrium. This means that the amount of purchase and sales of foreign currency will soon match each other.

The spokesperson added that April's foreign currency transactions resulted in more than a 100 billion yuan deficit. However, May transactions were able to produce an excess of almost 8 billion yuan. The upward trend continued in June, reaching almost 13 billion yuan.

The spokesperson warned that China's capital deficit may increase further if the US decides to hike the country's interest rate. Wang expressed confidence that if such a scenario occurs, the country's foreign exchange regulators will be able to "contain" it.

Observers said there is an even chance that the Federal Reserve will increase its interest rate sometime next week.

Another reason why China's capital outflow has spiked is due to the strengthening of the dollar in the first three months of the year, but the situation has been stabilized in the succeeding three months.

TagsChina deficit, chinese deficit, yuan deficit, state administration of foreign exchange, yuan surplus, chinese capital outflow, china hot money, chinese foreign currency transactions