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Will Chinese Outflows Land in India?
Fri, 11 Mar Pre-Open

The Chinese government and regulators have rolled out many measures to revive the fortunes of the Chinese economy or at least stop it from getting worse. But did any of them prove good? While it would be too early to answer that, the capital flight from China indicates a clear 'NO'.

Money is pouring out of China as rapidly as it once poured in. China's reserves, once a continuously rising hoard, are now falling continuously. They have continued their slump from 2015 after the People's Bank of China (PBOC) sought to shore up the yuan. This has further added more pressure on Chinese policy makers.

So how much money has left China so far?

As per an article in Livemint, China had a record US$ 3.99 trillion of foreign exchange reserves in June 2014. That is now down to US$ 3.2 trillion.

A fall in foreign exchange reserves mean people exiting China and parking their money elsewhere. From the above data it is evident that people are selling yuan and buying dollars. This has resulted more dollars flying off from the hands of PBOC. And lastly, it has resulted into a capital flight of dollars from China.

The reason behind this capital flight is the faltering growth in China. Investors have trimmed their positions here and have placed their bets on safe-haven assets elsewhere. Another reason for this capital flight can be the complicated measures adopted by the Chinese authorities.

So, people are shifting their money out of China. The question that comes to our mind is - where is all that money going? Or, better still, whether such money will come to India?

History demonstrates that capital tends to flow back into dollar assets when there are signs of economic instability. And surely there is instability all over right now. So, much of the outflows can be said to be cornered by the US.

India, too, has been relatively less vulnerable to the global slowdown as compared to other economies. And if the same trend continues, Indian may start looking attractive to foreign capital. Only time will tell how much of the Chinese money will land in India.

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Mar 21, 2018 12:37 PM