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China’s Capital Outflow(JIM) YUPENG LIUMATHEMATICS 2ND YEAR
The Impossible Trinity
https://www.youtube.com/watch?v=oLbfAfCVG_4
What is it like for now in China? China’s capital retreat from Australian Beijing tighten capital controls to avoid capital outflow1. 70%-80% of transaction being double-checked, watch list for unusual
transactions, for some are suspended.2. Downward pressure on currency.(supply and demand)3. Net capital outflow of US 190 billion in first quarter of 20154. Foreign exchange reserve fell by a record 93.9 billion US Dollars.(Sold
dollars to support yuan)(Likeqiang denied burst exports)
What about Australia? Chinese investors retreat from Australian property, not all of
them obviously.1. Westpac, an Australian bank, increase the mortgage interest
rate recently. (Hard to buy and sell, mainly)2. SIV(Significant Investor Visa) reform.(5 million dollars, 10% of VC
and PE, risk assets) from July 1st, 2014.3. Less vitality in Australian market.
The Impossible TrinityFor China1. Sacrifice free movement of capital.2. Shield for financial crisis.(1990s,2007)
If you don’t like this…. Like China, suffering the dilemma. Like UK in 1992, ERM(European Exchange Rate Mechanism blown
by speculative attacks)
Please not too ambitious…
Why China? One theme: The internationalization of yuan1. Shanghai the biggest financial centre in China, not Hong Kong.2. Contradictory to the SHILED.(shock from abroad, elimination of
capital controls, exposure to international disturbance.3. A little bit…ambitious…for now..
Capital Relaxation 4/8/2014 SAFE(The State Administration of Foreign Exchange) conducted new rule:Companies are free to convert all their registered capital into yuan, no securities thx.( Beijing, Shenzhen, Guangzhou) 13/11/2014Remove restriction on the yuan of the H.K exchange. (20,000, keep 80,000 of remit allowance still) (Onshore and Offshore)
Three-month RMB Deposit Rates: Onshore (CNY) and Hong Kong (CNH)
Daily Correlation:
-0.11
Result?Sudden relaxation trigger capital inflow, supporting unproductive business. Crisis. Why? Financial system large and insufficient, fragile. Big banks, state owned, controlled and shielded from market forces. Outsized loan share of SOEs despite higher productivity So, think twice before internationalize…
Another one…Capital Outflow Depreciation of yuan Expected devaluation Economy downwards Secure and effective asset management(For middle class, volatile in
stock market, not mature in bonds, unpredictable risk) Developed countries, regulations, welcome atmosphere, stable. Immigration Corruption
Where to? US:1. Removal of QE2. US dollars appreciated.3. China reduce bonds and increase security.(Money issue)Drawbacks:4. Long term bear market.5. Immigration downwards.
So…Australia and Canada?
Developed countries, regulations, welcome atmosphere, stable. Natural resources. Connection with Australia.(APEC AIIB, and from Kevin Rudd(陆克文 )) Immigration Economical stability, avoid risk.
The Trans-Pacific Partnership (TPP)
TPP is a proposed trade agreement between twelve Pacific Rim countries concerning a variety of matters of economic policy, about which agreement was reached on 5 October 2015 after 5 years of negotiations.
A reason to outflow.
But out of control, so…
9/8/2015 Devaluation by 1.9%, PoBoC Export to China from others downwards. Improve China’s exports. Delay inclusion in SDR’s currency composition. Use of yuan in cross broader downwards..So, in terms of internationalization, take a baby step, not too ambitious…..
