Eric Burroughs on Chinese capital flight

by on February 15, 2016 at 1:57 am in Current Affairs, Data Source, Economics | Permalink

Thus, we can say: 1) outflows are sizable but exaggerated in reserves (Feb should be telling given EUR’s surge); 2) China paying down FX debt is part of the equation, so it’s not all hot capital flight; 3) China’s overall debt is a problem but mostly in its own currency, so it has more means of dealing with it than other EMs in the many well-known debt crises of the past 30–40 years. I’m still waiting for a good explanation of why China can’t monetize its local FX debt and not hobble households in the process.

Here is more, of interest thoughout (which is not quite the same as “interesting throughout”), Eric is less bearish than many, worth the read.  That said, the latest trade data are not looking so good.

Hat tip goes to www.macrodigest.com.

1 Tom Warner February 15, 2016 at 2:37 am

Thanks, many good points in there, though over-trusting of authority, and I’m not sure there’s a definite line between paying down liabilities and hot money outflows. I too think China can monetize a lot, but though that can dodge the classic EM type of crisis, it cann’t solve the core problems, which are weak export growth and dropping domestic assessments of domestic savings and investment opportunities.

2 jorgensen February 15, 2016 at 11:58 am

“which are weak export growth”

China has basically finished destroying basic western manufacturing. If they want to grow exports they have to destroy companies like Boeing and Intel.

3 Ray Lopez February 15, 2016 at 10:41 am

I want TC to win his bet vs Scott Sumner on China, even if it means collapsing the second (?) largest economy in the world and bringing misery to billions of people. That’s right.

Today this amusing journalist blurb caught my eye: “LONDON World stocks rose sharply on Monday as China’s central bank fixed the yuan at a much stronger rate and oil cemented recent gains, easing fears of global deflation.” HA HA HA

4 TallDave February 16, 2016 at 1:31 pm

They can “monetize its local FX debt and not hobble households in the process,” but of course they can’t monetize massive amounts of debt without devaluation and inflation, particularly if the trend is to create more and more debt that will eventually be monetized. Their plan seems to be to cling to their peg with harder capital controls to maintain the official polite fiction of continuing strong RGDP growth and low inflation, but increasing capital flight suggests this can’t work for more than a year or two unless real growth returns.

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