TAIPEI (Taiwan News) -- An editorial by Nikkei asserts that in order to prop up the Chinese Yuan, China may begin to strengthen restrictions on capital outflow and even travel by tourists abroad, potentially having a major impact on the world economy.
In a Nikkei editorial released on Wednesday (Feb. 20), the Japanese economic newspaper stated that China may strengthen its restrictions on capital outflows in order to stem the bleeding from its foreign-exchange reserves. A head of a sovereign Asian wealth fund told the newspaper that China will restrict overseas tourism in the near future to cut down on the depletion of China's forex reserves from the frantic buying of commodities by Chinese tourists overseas.
The editorial first introduces the concept of "stall speed," which is when the growth rate of an economy drops to a certain value that consumers start to worry about the future and become much more cautious about their consumption, leading to a "stall" in the economy. The article cites economists as estimating that China's "stall speed" is around 5 percent growth.
China's growth rate in the fourth quarter last year was officially 6.4 percent. However, because Chinese statistics are so notoriously overinflated and unreliable, an Asia economist and resident scholar at the American Enterprise Institute in Washington told Radio Free Asia that "Fourth-quarter annualized real GDP growth was considerably closer to 2.4 percent than 6.4 percent."
Beyond economic factors, political considerations are also influencing China's desire to protect its hoard of forex reserves. The article asserts that in order to hold on to U.S. treasury bonds and maintain its leverage over the U.S., China will inevitably have to take major efforts to preserve its foreign currency trove.
The article cited industry experts who believe that the People's Bank of China (PBC) must maintain a minimum of US$3 trillion in foreign exchange reserves in order to maintain market trust in the Chinese yuan. However, by the end of last month, only US$3.1 trillion remained in China's reserves, leaving the country in a desperate position to do anything necessary to prevent further losses of its precious foreign treasure.
Nikkei suggested that China's efforts to tighten restrictions on foreign exchange outflows will have the greatest impact on developing countries that rely on Chinese investment. Some scholars even believe that after China's withdrawal of funds, it may be difficult for some countries to fill in the gaps.
Lastly, the article concludes that if China continues to refuse to improve its fragile and vulnerable economic structure, and chooses to continue to implement the short-sighted "Big Bonus" (大撒幣) domestic spending policy, the market will continue to face great risks that the Chinese yuan will plummet in value.