L’autre effet Ukraine / Taïwan : l’économie chinoise souffre et ça commence à se voir vraiment


Capital outflows from China are now as large as they were during the 2015-2016 renminbi devaluation scare.

Capital outflows from China are now as large as they were during the 2015-2016 renminbi devaluation scare.


capital outflow

Capital outflows from China are now as large as they were during the renminbi devaluation scare in 2015 and 2016. Foreign investors are looking at China in a new light after Russia invaded Ukraine and with the Taiwan crisis.

Atlantico: The Chinese economic situation seems to become more complex. As noted, for example, economist Robin Brooks, capital outflows are now so large than during the renminbi devaluation scare in 2015/6. How serious is the situation?

Jean-Marc Siroen: Since the beginning of the year, China has indeed experienced a net capital outflow (difference between inflows and outflows of financial capital) that should be around 200,000 million dollars, which is quite considerable. But it would be a mistake to focus solely on China. It is true that the country’s current difficulties and, in particular, its economic slowdown, its adherence to a zero covid strategy and the very critical situation of its banking sector, are weighing down China’s attractiveness. But these are not the only causes. Rising US interest rates make investments in the US even more attractive as they also accompany the rise in the dollar. Since April, the Chinese currency has lost more than 6% against the US currency. Indeed, these Chinese capital outflows will help finance US government deficits, which, by the way, should also raise some questions in the US about this form of dependency.

What is the reason for this economic situation and, in particular, the outflow of capital?

Let us be cautious about the interpretation of net capital outflows. This is a balance that, unlike the trade balance, has nothing “structural” and does not tell us much about the real economy. However, it may have more cyclical causes linked to the spectacular slowdown in the Chinese economy, which also reflects that of the world economy —after the 2021 boom that greatly benefited Chinese exports— and the stubbornness of the Chinese leaders in their strategy . covid” which, due to the confinements, weighs on production and trade.

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To what extent does China’s ambiguous position on the war in Ukraine and its stance on Taiwan influence the way foreign investors view China?

The net capital outflows that we have discussed are not the result of companies but of public or private financial institutions that invest their funds, often in the short term, with financial objectives. Of course, they assess political risk, but this is not the main criterion, at least as long as the possibility of quickly repatriating capital is not questioned. Where the political risk is greater is with direct investments that allow companies established abroad to be controlled. The case of subsidiaries of Western firms established in Russia has shown that this risk could materialize very quickly… For the time being, foreign direct investment inflows into China are still higher than outflows, but what will the next few years look like? months, years to come? The political risk reassessment driven by China’s tougher stance (particularly on Taiwan) combined with the desire of companies (and governments) to reverse the dispersion of global value chains will inevitably weigh on China’s attractiveness.

Economist Michael Pettis recently said, “We are living in the last year of China’s growth model.” Are we really witnessing a permanently new and problematic situation for China?

Certainly it takes more than a year to unravel a growth model and furthermore, what has characterized China for 40 years is not having applied a growth model but having made two of them coexist: on the one hand, a “Stalinist” historical model. based on planning, state enterprises, heavy industry and, on the other hand, a “globalist” model based on the market, private property, competition and foreign direct investment. Logically, one would expect today the extinction of the first and the adaptation of the second, but Xi Jinping’s policy seems to be leaning in the opposite direction -perhaps because the Stalinist model is more compatible with the system policy that remains untouchable- when we had more well thought that it was going to stimulate the globalist model by promoting an upward movement (Made in China 2025) always with an export vocation (especially through the “new silk routes”). However, China’s current difficulties stem more from the Stalinist model, which led to overinvestment in infrastructure and real estate, and weakened the financial system. In addition, the “new silk routes” appear today as a financial abyss also because of the madness of greatness of power tempted by the implementation of a Chinese model of imperialism. The Chinese government has also failed to convince families to go beyond “one child”, which will eventually limit growth. In fact, the two models that were supposed to coexist are now in great difficulty. With a good alignment of the planets (as in 2021!), China could still see some enviable growth rates, but without deeper questioning, they will become increasingly rare.

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