Comments on: Did China experiencing January hot money outflows? http://mpettis.com/2009/03/did-china-experiencing-january-hot-money-outflows/ China's financial and monetary links to the world Tue, 16 Mar 2010 05:13:22 -0500 http://wordpress.org/?v=2.8.6 hourly 1 By: clayton http://mpettis.com/2009/03/did-china-experiencing-january-hot-money-outflows/comment-page-1/#comment-1313 clayton Mon, 06 Apr 2009 05:25:46 +0000 http://mpettis.com/?p=399#comment-1313 > Note 2:  Once again my site is blocked in > China.  I don’t know why– I > hope it only has something to do with last > week’s NPC meeting and will > be fixed soon – but until it is resolved my > formatting will be screwed > up and I won’t be able to respond to comments. I am sure you are aware you are no longer blocked in China. But if you want to be able to get around the local censorship, may I recommend you install Tor http://www.torproject.org/ and use it with the Firefox web browser and either the "torbutton" or "foxyproxy" Firefox plugins. > Note 2:  Once again my site is blocked in
> China.  I don’t know why– I
> hope it only has something to do with last
> week’s NPC meeting and will
> be fixed soon – but until it is resolved my
> formatting will be screwed
> up and I won’t be able to respond to comments.

I am sure you are aware you are no longer blocked in China. But if you want to be able to get around the local censorship, may I recommend you install Tor http://www.torproject.org/ and use it with the Firefox web browser and either the “torbutton” or “foxyproxy” Firefox plugins.

]]> By: Current » Chimerica or Greater China? http://mpettis.com/2009/03/did-china-experiencing-january-hot-money-outflows/comment-page-1/#comment-1294 Current » Chimerica or Greater China? Fri, 03 Apr 2009 04:13:12 +0000 http://mpettis.com/?p=399#comment-1294 [...] ,which covers the present-day economic development of China (two recent entries, as a sampler: Did China experiencing January hot money outflows? and Trade, CPI and other numbers came in this week, about whether the global crisis is seeping into [...] [...] ,which covers the present-day economic development of China (two recent entries, as a sampler: Did China experiencing January hot money outflows? and Trade, CPI and other numbers came in this week, about whether the global crisis is seeping into [...]

]]> By: Vangel http://mpettis.com/2009/03/did-china-experiencing-january-hot-money-outflows/comment-page-1/#comment-1227 Vangel Mon, 23 Mar 2009 21:37:03 +0000 http://mpettis.com/?p=399#comment-1227 It seems clear that the Chinese want to diversify their holdings away from USTs and use the purchasing power that they still have to purchase assets abroad that they will need in the future. Eventually, the amount that they use to purchase Peruvian iron ore mines, Argentine plantations and Chilean copper plays will show up as a decline in their foreign exchange reserves. Last spring I took the kids to Xi'an for their three week March break holiday. While I was there I had breakfast with a former official from AVIC, who seems very well connected and used to be a very important player when I worked in China in the 1990s. He pointed out that one way to hedge the risk of a USD collapse was to have the Chinese use their reserves to buy companies that hold a great deal of debt. Frankly, I am surprised that they have not made more attempts to purchase large natural resource companies that have a need to refinance. It seems clear that the Chinese want to diversify their holdings away from USTs and use the purchasing power that they still have to purchase assets abroad that they will need in the future. Eventually, the amount that they use to purchase Peruvian iron ore mines, Argentine plantations and Chilean copper plays will show up as a decline in their foreign exchange reserves.

Last spring I took the kids to Xi’an for their three week March break holiday. While I was there I had breakfast with a former official from AVIC, who seems very well connected and used to be a very important player when I worked in China in the 1990s. He pointed out that one way to hedge the risk of a USD collapse was to have the Chinese use their reserves to buy companies that hold a great deal of debt. Frankly, I am surprised that they have not made more attempts to purchase large natural resource companies that have a need to refinance.

]]> By: paul b http://mpettis.com/2009/03/did-china-experiencing-january-hot-money-outflows/comment-page-1/#comment-1225 paul b Mon, 23 Mar 2009 12:49:36 +0000 http://mpettis.com/?p=399#comment-1225 hey book my band at your venue!!! we are the ORIGAMI JETS!!!!!!!!!!!!!! WWW.MYSPACE.COM/ORIGAMIJETS Rock on mr. pettis aka banker man... hey book my band at your venue!!!

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]]> By: bomlat http://mpettis.com/2009/03/did-china-experiencing-january-hot-money-outflows/comment-page-1/#comment-1223 bomlat Sun, 22 Mar 2009 21:02:36 +0000 http://mpettis.com/?p=399#comment-1223 Mr. Pettis! How is the connection between the investment-consumption-export work? I mean,if the export fall,the investment and the consumption have to fall,and the consumption fall have to mean an additional fall in the investment. I assume that the initial fall in the export have to mean a fall in the investment by the percentage of the investment in the GDP (so,5 percent fall in GDP due to the smaller export have to mean a 2% additional drop in the investment) What is your oppinion? Mr. Pettis!

How is the connection between the investment-consumption-export work?
I mean,if the export fall,the investment and the consumption have to fall,and the consumption fall have to mean an additional fall in the investment.
I assume that the initial fall in the export have to mean a fall in the investment by the percentage of the investment in the GDP (so,5 percent fall in GDP due to the smaller export have to mean a 2% additional drop in the investment)

What is your oppinion?

]]> By: Dr.Frank Loo http://mpettis.com/2009/03/did-china-experiencing-january-hot-money-outflows/comment-page-1/#comment-1222 Dr.Frank Loo Sun, 22 Mar 2009 19:22:25 +0000 http://mpettis.com/?p=399#comment-1222 DJ Jiancong Duan: Very interesting post. What I fear is if the supply of US$ keeps exceeding the demand then a serious problem will arise. I will not be surprised to see a Big Mac at US$50. DJ Jiancong Duan: Very interesting post. What I fear is if the supply of US$ keeps exceeding the demand then a serious problem will arise. I will not be surprised to see a Big Mac at US$50.

]]> By: DJ Jiancong Duan http://mpettis.com/2009/03/did-china-experiencing-january-hot-money-outflows/comment-page-1/#comment-1220 DJ Jiancong Duan Sun, 22 Mar 2009 03:41:41 +0000 http://mpettis.com/?p=399#comment-1220 Great Blog Mike. I think hot money outflow is very likely given as smart money anticipating years of sub par growth ahead and relative overvalue of CNY currency and assets compared to it’s Asian neighbor and competitors. Even if China can hold its ccy from deval, in the next round of global booming CNY assets should underperform other regions so at least for me it doesn’t make any sense to hold CNY denominated assets for now. Regarding policy reaction to the outflow from Chinese authorities, I suspect they will try to maintain the peg to USD for now as there’s subtle clue that China has the political ambition to internationalize Yuan and make it a major settlement and reserve currency, (there’s some official talks about it if I didn’t remember wrong, and they are settling up swap agreement to various Emerging countries even those outside of Asian), and an unstable currency contradicts that ambition. However, as the whole world engage in Quantitative Easing one by one, all the deflation and depression pressure will be transferred to China if they still keep CNY appreciate on a Trade Weighted basis. So I expect CNY devalue at some stage, maybe not necessarily against USD, but definitely precious metal/commodities which can preserve real purchase power. Also, as China’s trade balance shrink (good chance to slump into deficit next month), they will be forced to reduce US Treasury holdings no matter China/ US like to see it or not. So my macro trade idea right now is to pay USD rates (2.6% in 10y now, down side 260 bps, while upside could be 1500 bps or more in a black swan situation), long commodity, and hedge the risk of sharp risk reduction from wipe my portfolio by long equity puts. Just sharing a bit of my view here to get more discuss/debates on your Blog ? Great Blog Mike. I think hot money outflow is very likely given as smart money anticipating years of sub par growth ahead and relative overvalue of CNY currency and assets compared to it’s Asian neighbor and competitors. Even if China can hold its ccy from deval, in the next round of global booming CNY assets should underperform other regions so at least for me it doesn’t make any sense to hold CNY denominated assets for now.

Regarding policy reaction to the outflow from Chinese authorities, I suspect they will try to maintain the peg to USD for now as there’s subtle clue that China has the political ambition to internationalize Yuan and make it a major settlement and reserve currency, (there’s some official talks about it if I didn’t remember wrong, and they are settling up swap agreement to various Emerging countries even those outside of Asian), and an unstable currency contradicts that ambition. However, as the whole world engage in Quantitative Easing one by one, all the deflation and depression pressure will be transferred to China if they still keep CNY appreciate on a Trade Weighted basis. So I expect CNY devalue at some stage, maybe not necessarily against USD, but definitely precious metal/commodities which can preserve real purchase power.

Also, as China’s trade balance shrink (good chance to slump into deficit next month), they will be forced to reduce US Treasury holdings no matter China/ US like to see it or not. So my macro trade idea right now is to pay USD rates (2.6% in 10y now, down side 260 bps, while upside could be 1500 bps or more in a black swan situation), long commodity, and hedge the risk of sharp risk reduction from wipe my portfolio by long equity puts.

Just sharing a bit of my view here to get more discuss/debates on your Blog ?

]]> By: lark http://mpettis.com/2009/03/did-china-experiencing-january-hot-money-outflows/comment-page-1/#comment-1209 lark Thu, 19 Mar 2009 17:22:33 +0000 http://mpettis.com/?p=399#comment-1209 Michael, I'm interested on your thoughts about the impact of the Fed's 'printing press' approach on China, the current account deficit, & Chinese reserves. Many say this will drive down the dollar. Will that make it more difficult for China to maintain the peg? In general, how will it impact Chinese trade relationships? thanks. Michael, I’m interested on your thoughts about the impact of the Fed’s ‘printing press’ approach on China, the current account deficit, & Chinese reserves. Many say this will drive down the dollar. Will that make it more difficult for China to maintain the peg? In general, how will it impact Chinese trade relationships? thanks.

]]> By: Dr.Frank Loo http://mpettis.com/2009/03/did-china-experiencing-january-hot-money-outflows/comment-page-1/#comment-1207 Dr.Frank Loo Thu, 19 Mar 2009 14:03:14 +0000 http://mpettis.com/?p=399#comment-1207 Michael: I have been reading the debate here with interest. You said "the only risk of capital outflows is that it could force a devaluation.." Is this the only risk? When there are risks there are opportunities as well. What opportunities can you see under such circumstances? Michael: I have been reading the debate here with interest. You said “the only risk of capital outflows is that it could force a devaluation..” Is this the only risk? When there are risks there are opportunities as well. What opportunities can you see under such circumstances?

]]> By: Michael http://mpettis.com/2009/03/did-china-experiencing-january-hot-money-outflows/comment-page-1/#comment-1205 Michael Thu, 19 Mar 2009 04:45:04 +0000 http://mpettis.com/?p=399#comment-1205 Qingdao, one of the legacies of 1997 is that too many people who should know better think that the only risk of capital outflows is that it could force a devaluation leading to an explosion in dollar-denominated debt. These people keep pointing to China’s $2 trillion and saying “no problem.” Aside from the fact that they should also be pointing to China’s low levels of external debt, they are missing the real risk in China, which is, as you point out, the monetary consequences of outflows. Qingdao, one of the legacies of 1997 is that too many people who should know better think that the only risk of capital outflows is that it could force a devaluation leading to an explosion in dollar-denominated debt. These people keep pointing to China’s $2 trillion and saying “no problem.” Aside from the fact that they should also be pointing to China’s low levels of external debt, they are missing the real risk in China, which is, as you point out, the monetary consequences of outflows.

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