China, is now playing a soul-stirring "capital outflow sniper", which is "China's economic defense."
The last time China faced the threat of significant outflows in the mid-1990s, it did not utilize capital controls, in part because it had much tighter controls to begin with. Now is a different story.
Only in the past two months, we see regulators shoot four times, the goal is clear, cut off the capital outflow through black channels: in October, UnionPay cut off Hong Kong insurance payment channels; November, bitcoin, huge foreign investment projects, Shanghai Free Trade Area strengthen the review of overseas investment channels. Almost all the central bank's big news are related to combat capital outflows.Why launch a war now? Some numbers to put the situation in context:
We then lengthen the timeline, you will find that from the end of last year to stop some of Deutsche Bank's foreign exchange business, to November this year, the RMB exchange rate fluctuations every time, are accompanied by capital outflows warning and regulators war.
Regulators are so battle ready for capital outflows with rarely seen poewr, even in the mid-1990s when China faced a serious capital outflow, that was not the case.
This "capital outflow sniper war" continues, however, it can be said that results are slowing in the last six months: in the first stage, monthly outflows fell about $50 billion, and the last seven months were reduced by about $10 billion.
However, it is unexpected, accompanied by the overseas investment surge, the speed is almost out of control. Reflected in the foreign exchange reserves, in June 2014 reached its peak and after a sharp turn, two years later it has dropped dropped by $870 billion.Reserves have already declined by more than in 1997 on a percentage basis and there hasn't been any crisis yet.
What is the concept of $870 billion? The total resources of the IMF total $660 billion. During the entire Southeast Asian financial crisis, the world's foreign exchange reserves fell $350 billion, and in two years, China's foreign exchange reserves shrunk by more than 20%. Is not difficult to foresee, if left alone, 10 years later the foreign exchange reserves would be dismal.