How can China deal with its financial dilemma? – Victor Shih

Devaluation of the Renminbi, limiting export or more straining of capital flight are some options China’s government has to deal with its financial dilemma caused by the trade war, but – warns financial expert Victor Shih – all might also cause setbacks, he tells Reuters.

Reuters:

Meanwhile, the famed trade surplus the export powerhouse ran with the rest of the world has been shrinking.

Victor Shih, an associate professor of political economy at the University of California, San Diego, says currency devaluation could be an attractive option for China to offset the impact of the trade war.

But he warned the tactic had limits, as it “could create a panic on the renminbi which becomes difficult to control”…

Shih estimates that even a modest 20 percent reduction in exports to the United States could cause the monthly trade surplus to drop by $8 billion to $10 billion, nearly a third of the average. In addition, a reduction in foreign direct investment, which brought $136 billion into China last year, would also reduce forex inflows substantially, he added…

Shih said existing capital controls were very stringent.

“Even the billionaire class faces tight restrictions in terms of where they can invest money,” he said. “However, there are still ways, and it is likely that corruption is returning, which will undermine Chinese capital control measures.”

More at Reuters.

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.

Are you looking for more financial experts at the China Speakers Bureau? Do check out this list.

Money laundering in China - Sara Hsu

Sara Hsu

Around 100 billion US dollar leaves China illegally each year, estimates financial analyst Sara Hsu. Only last year 380 banks were busted for money laundering. She discusses at CGTN what the government does to prevent those illegal transactions.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more financial analysts at the China Speakers Bureau? Do check out this list.

Conflicting messages hurt business confidence - Shaun Rein

Shaun Rein

On one hand China tries to embark with "One Belt, One Road" on a massive global expansion. But financial limitations on the outflow of capital go against that. Those conflicting messages makes business people worried about what road to take, says business analyst Shaun Rein to the South China Morning Post.

The South China Morning Post:

To swap yuan into foreign currency and fund outbound investment, Chinese companies need the approval of the State Administration of Foreign Exchange (SAFE). 

But Beijing has adopted tougher rules on overseas investment applications since late last year, as the sharp depreciation of the yuan accelerated capital outflows, draining the country’s foreign reserves. 

As of early March, Chinese companies have announced US$19 billion of acquisitions abroad, a 74 per cent drop on a year ago, according to Bloomberg data. 

“The Chinese government is sending conflicting signals to businessmen,” said Shaun Rein, the managing director of China Market Research Group. 

“On the one hand, it wants Chinese companies to become global players and help build the belt and road initiative, yet at the same time the government is stopping companies from converting yuan into foreign currency. The conflicting policies are hurting business confidence,” Rein said. 

“China needs to decide whether it wants to lead and be part of the international economic system and fill the power gap left by a protectionist America under Trump or if it will let short-term fears of capital outflows destroy what should be a multi-decade initiative to create power and economic well being for China,” he said.

More in the South China Morning Post.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more experts on the "One Belt, One Road' initiative? Do check out this list. 

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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.

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more financial experts at the China Speakers Bureau? Do check out this list.