Education and tourism might be next in stopping capital outflow - Victor Shih

Victor Shih

The efforts by China´s financial authorities to reduce the outflow of capital has already reduced many investment plans by the China. But financial analyst Victor Shih sees a few more holes in the country´s policies that might be stopped soon too: education and tourism, he tells Sourceable.

Sourceable:

Still, the Chinese determination to choke cash outflows appears to be serious, and could have implications that extend far beyond property and into other sectors whose payrolls and future plans are increasingly dependent on Chinese money, like universities and tourism operators. 

What China is doing with capital controls is similar to its management of the Internet, which Beijing has accomplished with great success. Access to censored websites “is not impossible from China, but it’s just a big hassle, and because it’s a hassle, very few people manage to do it on a regular basis,” said Victor Shih, who specializes in Chinese fiscal policy at the University of California San Diego. 

The goal with currency conversion restrictions “is exactly the same – to create enough friction to deter the vast majority of people from converting sizable amounts of money,” he said. 

There is much more, too, that China could do, Prof. Shih said. Every month, Chinese people spend between $15-billion and $20-billion (U.S.) abroad on services like tourism and education. It’s a huge cash drain, and one that China could pare back by restricting the number of people who can travel and study abroad. 

“I really think this is where it’s all heading – dialling back the clock to the early eighties when all flows, including visits, were tightly regulated by the government,” Mr. Shih said. 

“The leadership would like a certain combination of outcomes – stable growth, and also currency stability, and also no financial risk,” he said. “In order to accomplish that, you just have to control more and more stuff.”

More in Sourceable.

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