China fact of the day

By almost all measures, China’s $3.3 trillion foreign reserves, the world’s largest, look formidable. Except one.

Compared with the amount of yuan sloshing around in the economy, a proxy for potential capital outflows, China’s firepower seems limited. The dollar reserves account for 15.5 percent of M2, a broad measure of money in circulation. That’s the lowest since 2004 and is less than levels in most Asian economies including Thailand, Singapore, Taiwan, Philippines and Malaysia, according to data compiled by Bloomberg.

That is from Ye Xie.  Please do note all of the caveats and qualifiers in the longer piece.  The claim is not that Chinese reserves are currently in some kind of crisis situation, only that we should not overestimate their import, relative to potential and indeed actual capital outflows.

Comments

See, one post, and something learned that is already at least, if not more, useful than the preceding post.

In what way is it useful?

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Sobering data. China is not better or worse than other emerging economies. China exceptionalism was getting tiresome.

Nobody even worries about about Haiti's M2.

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China has more in cash savings than American workers over age 60 who will will soon be fired by American employers, but that isn't significant...

Why will American workers over age 60 "soon be fired by American employers,"?

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To some, the problem isn't that capital outflows from China will accelerate but that they will stop, or even go in reverse. I have a nice penthouse condominium in Miami I'd like to sell - China's loss is my gain. Who, exactly, does the administration suspect of buying all that real estate in NYC and Miami? El Chapo? Is it a good thing for capital to be sunk into real estate in NYC and Miami rather than invested in infrastructure and productive capital in China?

Indeed. Two heavily finance dependent sectors, real estate and resource development who have both been driven by Chinese capital will cause cascading problems if/when things start coming apart.

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Why do you assume all investment in "infrastructure" or "productive capital" in China is somehow more worthwhile?

Example: China wasted a lot of money building white elephant conference centers for low tier cities. And eventually you have enough roads and trains and aeroplanes that building more and more of those is also less than useful.

Same with steel mills or laser disc factories or solar panel plants.

Maybe its better the money be in the USA paying property taxes to pay for police and firemen in Miami or NYC.

Also, sometimes the Chinese cash coming over for real estate will actually be used. For example, buying a house so your kid can live there while attending US college. (Often mommy comes along to watch over junior and do his laundry.)

This may seem "unproductive" to you, but to the Chinese person who has made money off his factory and now has the gray hairs to prove it, getting his only son to the USA to become a lawyer seems a much better deal than paying bribes, dealing with workers, and living in pollution.

I have a fair amount of dealings with those kids. And like 'em, they make me hopeful for America in a way that, say, Cologne doesn't make Germans hopeful.

Well the relevant comparison with the Middle Eastern refugees in Germany would be hispanics from south of the US. But still, the US seems to be much better off.

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Now that US clashed and burn, maybe TC can do some US fact of the day. Enlightened us about the economy of USA.

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Watch the reserves.

They seem like they might be headed for a 1999-style currency crisis, if growth. They should float now and take their lumps, but I think they are afraid to.

Given the repressive state of Chinese political institutions, if reserves do get depleted things could spin out of control very quickly and become very, very ugly.

Hopefully they are going to be smart.

*if growth doesn't re-emerge.

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