AFP, Beijing :
China is struggling to reconcile its push for economic reforms and a freely traded currency with curbing massive outflows of capital sparked by worries over its slowing economy-and a lack of communication is fuelling fear.
The thorny problem represents the so-called “impossible trinity”, as China’s ruling Communist Party seeks to control the exchange rate and monetary policy, while at the same time moving to freer capital flows, analysts said.
Around $1.0 trillion left China last year, according to Bloomberg Intelligence. In December alone capital outflow from the country was nearly $160 billion, it said.
The cash haemorrhage reflects growing concern about the economy against a backdrop of volatility in the stock and currency markets, which has led both investors and savers to shed their yuan, also known as the renminbi (RMB).
“The recent flood of capital leaving China has been driven primarily by increased scepticism that the People’s Bank (the central bank) will hold to its pledge to keep the renminbi stable,” said Mark Williams, chief Asia economist at Capital Economics.
At the recent World Economic Forum in Davos, billionaire investor George Soros told Bloomberg TV that the world’s second largest economy, where growth has already slowed to a 25-year low, was heading for more trouble.
“A hard landing is practically unavoidable,” he said, pointing to deflation and excessive debt as a reason for China’s slowdown.
His remarks angered the Chinese media, which accused him of “declaring war” on the currency.
Soros-whose enormous trades are still blamed in some countries for contributing to the Asian financial crisis of 1997 — in the 1990s led speculators in bets against the Bank of England, which unsuccessfully sought to defend the pound’s exchange rate peg.
The yuan has retreated against the dollar by 1.3 percent since the start of January, having already slid more than 4.5 percent against the greenback in 2015.
Beijing keeps a grip on currency flows and the yuan can only move up or down against the dollar by two percent daily from a mid-rate set by the People’s Bank of China (PBoC), the central bank.
But after a surprise devaluation last August-a move intended to bring it closer to its market value according to Beijing-the yuan is being dragged down by the vast outflows of capital.
Chinese citizens are allowed to convert the equivalent of $50,000 from the domestic currency under an annual quota, though many seek ways to evade the barrier. A popular method is borrowing the quota of other people, such as family members.
China is struggling to reconcile its push for economic reforms and a freely traded currency with curbing massive outflows of capital sparked by worries over its slowing economy-and a lack of communication is fuelling fear.
The thorny problem represents the so-called “impossible trinity”, as China’s ruling Communist Party seeks to control the exchange rate and monetary policy, while at the same time moving to freer capital flows, analysts said.
Around $1.0 trillion left China last year, according to Bloomberg Intelligence. In December alone capital outflow from the country was nearly $160 billion, it said.
The cash haemorrhage reflects growing concern about the economy against a backdrop of volatility in the stock and currency markets, which has led both investors and savers to shed their yuan, also known as the renminbi (RMB).
“The recent flood of capital leaving China has been driven primarily by increased scepticism that the People’s Bank (the central bank) will hold to its pledge to keep the renminbi stable,” said Mark Williams, chief Asia economist at Capital Economics.
At the recent World Economic Forum in Davos, billionaire investor George Soros told Bloomberg TV that the world’s second largest economy, where growth has already slowed to a 25-year low, was heading for more trouble.
“A hard landing is practically unavoidable,” he said, pointing to deflation and excessive debt as a reason for China’s slowdown.
His remarks angered the Chinese media, which accused him of “declaring war” on the currency.
Soros-whose enormous trades are still blamed in some countries for contributing to the Asian financial crisis of 1997 — in the 1990s led speculators in bets against the Bank of England, which unsuccessfully sought to defend the pound’s exchange rate peg.
The yuan has retreated against the dollar by 1.3 percent since the start of January, having already slid more than 4.5 percent against the greenback in 2015.
Beijing keeps a grip on currency flows and the yuan can only move up or down against the dollar by two percent daily from a mid-rate set by the People’s Bank of China (PBoC), the central bank.
But after a surprise devaluation last August-a move intended to bring it closer to its market value according to Beijing-the yuan is being dragged down by the vast outflows of capital.
Chinese citizens are allowed to convert the equivalent of $50,000 from the domestic currency under an annual quota, though many seek ways to evade the barrier. A popular method is borrowing the quota of other people, such as family members.
