China Watch #2
Recently Australian Financial Review Journalist Angus Grigg reported an interesting admission by a director at China’s State Administration of Foreign Exchange (SAFE). It’s a big deal for a SAFE official to be making such statements publicly.
Here’s the highlights:
- Guan Tao, [a] director of international settlements at the State Administration of Foreign Exchange, sounded a warning even as the government continues to stress the economy is stable.
- “My personal view is that the domestic and foreign situation facing China looks more and more like the Asian financial crisis,” he told a conference over the weekend.
- “We can sense the atmosphere of the Asian financial crisis is getting closer and closer to us.”
- Mr Guan said the crisis-like symptoms were showing up in the foreign exchange markets, as capital continued to leave China at ever greater rates.
- Officially $US20 billion left the country in December, but many believe the real figure could be four times that level if money taken out through grey channels was included.
- At the same time its currency, the Yuan, has weakened against the US dollar.
- The fear is that continuing high levels of capital flight could see the currency weaken sharply.
- “There is a risk if the currency was to weaken too much it could cause some financial instability,” said ANZ’s chief China economist Liu Li-gang.
- He said Chinese companies had around $US1 trillion of external debt, 80 per cent of which has been borrowed on the short-term money markets.
Roger Montgomery is the founder and Chief Investment Officer of Montgomery Investment Management. To invest with Montgomery, find out more.