In the last issue of my newsletter much of the first half was dedicated to a discussion of recent events in Spain and Italy and why they reinforce the argument that several countries will be forced to leave the euro and restructure their debt. The most worrying, but expected, fact was the amount of capital fleeing the afflicted countries. I cited an article in Spiegel that claims that in the past year an amount equal to nearly 30% of Spain’s GDP had left the country. Flight capital is both a major result of declining credibility and a major cause of further declining credibility, and because it is so intensively reinforcing it is a major warning signal.
This matters for China for at least two reasons. First, a worsening Europe will make it harder than ever for China to rebalance growth away from investment, and second, China itself is experiencing capital flight.China Financial Markets
How do we measure debt?
Michael Pettis
6 comments:
"and second, China itself is experiencing capital flight."
How can yuan "leave China"?
rsp,
How can yuan "leave China"?
Wealthy Chinese (illegally) convert RMB to HKD, USD or euro to purchase assets abroad. There are apparently a number of laundering techniques and subterfuges.
That would have to be facilitated by the China central bank....
And even though to my point, the Yuan balances still cannot "leave China".
This whole concept of "capital flight" makes no mathematical sense to me.
the only thing "leaving China" are the 100s of $B worth of goods that those zombies send over here year after year after year in exchange for the US marking up this spreadsheet on their behalf:
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
(btw looks like they have been stuffing these securities in Japan lately...)
rsp,
Capital flight sends a signal about an economy. It's considered not a good sign in an emerging economy, which needs to be attracting capital, not losing it.
Tom,
The yuan balances are still there.
Any "problems" they have by force of logic have to be at core based on the fact that they ZEALOUSLY SEEK to be the leaders in the global race to the bottom.... if that means cut backs from 3 to 2 rations of dog brain soup per day, then they will do what they think they have to do...
rsp,
Right, but the investment is not flowing toward China but away from it, as wealthy Chinese invest in assets abroad rather than at home. So the yuan exchanged for, say, USD, sit idle in the books in China.
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