Economy

marmar

(77,081 posts) Tue Apr 26, 2016, 11:09 AM Apr 2016

China’s “Lehman Moment?”

China’s “Lehman Moment?”
by Wolf Richter • April 25, 2016

[font color="blue"]Or Decades of Japan-Style Stagnation?[/font]

Last year, $674 billion fled China. This year through March, $175 billion did. The Institute of International Finance, in a report released today, estimated that $538 billion would flee China this year.

Reserves have plunged from $4 trillion in June 2014 to $3.2 trillion as of February. Much of it is illiquid and cannot be used to stabilize the currency. So the IIF said that capital flight could accelerate if Chinese investors fret that the yuan could fall in a “disorderly” manner.

This would have broader ramifications:

A sharp drop in the renminbi would likely spark a renewed sell-off of global risk assets and trigger a flight of portfolio capital from emerging markets.

Moreover, a sharp depreciation of the renminbi could lead to a round of competitive devaluation in other emerging markets, particularly in those with close trade linkages to China.

The report warned that an “important unknown” is the level of currency reserves that the Chinese government considers critical. If reserves drop below that level, authorities might either let the yuan fall sharply or tighten currency controls further, both of which would rattle markets around the world.

Add to this environment the growing fear of bond defaults by Chinese state-owned enterprises. Companies have extended large amounts of loans to each other, and defaults would ricochet through Corporate China. ............(more)

http://wolfstreet.com/2016/04/25/chinas-lehman-moment-or-decades-of-japan-style-stagnation-debt-to-gdp/

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China’s “Lehman Moment?” (Original Post) marmar Apr 2016 OP

A few things: DetlefK Apr 2016 #1

DetlefK

(16,423 posts)

1. A few things:

Reply to marmar (Original post)

Tue Apr 26, 2016, 11:36 AM

Apr 2016

1. About 90% of the chinese economy is state-owned. The sentence “The financial engineers have run amok again. They’ve run amok in the US and they’ve run amok here." is accordingly incorrect. This wasn't the work of some greedy bankers. On that scale, nothing in China happens without the approval of the chinese government.

2. China's economy is bloated and the chinese government cannot UNDER ANY CIRCUMSTANCES allow a down-turn of the chinese economy. Why?
Because the chinese population has exactly ONE reason for their loyalty to the communist regime: The communist party has lifted the country out of poverty. Ask any Chinese and he will tell you a story how the policies of the communist party lifted his parents or his grand-parents from poverty to middle-class.
An economic down-turn will destroy this loyalty, and this dissent is not only totally anathema to the monolithic culture of China, it's also politically dangerous. Imagine 300 million Chinese complaining on the internet about the disastrous economic policies of the communist party.
The communist regime has no choice but to go for quick&dirty solutions, the economic consequences be damned.

3. I wonder, how much of that money is actually corrupt chinese politicians and business-leaders shoveling embezzled money out of China???

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