01-19-2009, 01:03 AM
<b>Forex tide turns outward in China</b><!--QuoteBegin-->QUOTE<!--QuoteEBegin-->Official foreign exchange reserves rose in the fourth quarter of 2008 by $40 billion to $1.95 trillion, "but once adjusted for valuation changes in the portfolio, total inflows may only have been $10 billion, which means, according to our model an 'unexplained' foreign exchange outflow in Q4 of $240 billion," says Standard Chartered economist Stephen Green.
"Even if the scale is not as large as the headline figure suggests, the trend is pretty clear: 'unexplained' money (which includes 'hot' money) is leaving China," he adds.
Any estimate on capital outflows must be treated with caution, reasons Royal Bank of Scotland economist Ben Simpfendorfer. Even so, he estimates that "a decline in foreign exchange reserves of 'up to' $300 billion cannot be entirely ruled out."
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In any case, with about $2 trillion in reserve, he says, China "has a cushion that no country has ever had on the reserve front."
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The trend could likely prompt China's central bank to target a stable yuan over the next six months in order to deter a further rise in capital outflows, says Simpfendorfer. "The experience of early December, when the yuan's weakness sparked a surge in US dollar demand, was a timely warning on the risks of permitting the currency to weaken."
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US Companies are bringing home money. Bank of America is facing stiff resistance from China Government on Bank deal.
"Even if the scale is not as large as the headline figure suggests, the trend is pretty clear: 'unexplained' money (which includes 'hot' money) is leaving China," he adds.
Any estimate on capital outflows must be treated with caution, reasons Royal Bank of Scotland economist Ben Simpfendorfer. Even so, he estimates that "a decline in foreign exchange reserves of 'up to' $300 billion cannot be entirely ruled out."
...
In any case, with about $2 trillion in reserve, he says, China "has a cushion that no country has ever had on the reserve front."
....
The trend could likely prompt China's central bank to target a stable yuan over the next six months in order to deter a further rise in capital outflows, says Simpfendorfer. "The experience of early December, when the yuan's weakness sparked a surge in US dollar demand, was a timely warning on the risks of permitting the currency to weaken."
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US Companies are bringing home money. Bank of America is facing stiff resistance from China Government on Bank deal.