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Follow The Money: More Bad News From China

Is the smart money getting out of China? There seem to be increased signs that both foreign and Chinese investors are moving their money out of the Middle Kingdom. Here’s the Wall Street Journal:

New data published by China’s central bank Tuesday showed China’s banks were net sellers of 3.8 billion yuan ($597 million) in foreign exchange in July, suggesting that China’s exporters aren’t converting their dollar earnings into yuan and some investors are taking funds out of the country.

Withdrawing money from China, or simply not converting foreign currency back into yuan, as some Chinese firms are choosing to do, seems like a vote of no confidence in the economy. During the first 10 months of 2008, when the boom times were rolling, China’s banks were net buyers of 3.6 trillion yuan.

There is also some concern that these capital outflows might represent the beginning of a vicious cycle that reduces the government’s economic policy options:

Reduced flow of funds into China’s financial system mean tighter conditions in money markets, making it more difficult for banks to make loans, and complicating Beijing’s attempts to kick-start lackluster growth. China’s central bank has injected more than 1.4 trillion yuan into China’s financial system so far this year, but bank lending remains subdued.

All that money pouring out of China may be good news for stock markets around the world, but this can’t be welcome news in Beijing. Combined with poor trade data, and with growth at four-year lows, the evidence continues to mount that the Chinese economic miracle may be coming to an end.

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  • Lorenz Gude

    From my perch in Australia I can’t help but notice that the shine has gone off the Australian economy as it’s biggest customer for our iron and gas has slowed its buying. Perth has been a boom town where consumption has been conspicuous and business just ducky. Nothing serious yet, just the odd 60% off sign and vacant shop.

  • Mrs. Davis

    Let us know when the WA real estate bubble bursts.

  • Eurydice

    Does it have to be either a miracle or the end of the world?

  • Stephen M. St. Onge

    It’s the smart money that’s getting out..

    The Chinese economy is largely a Ponzi scheme, with the Party kleptocrats as the beneficiaries. Now’s the time to stick it to the suckers.

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