9% annual economic growth rate for nearly a decade in China, is it fantastic and amazing? Sure, it is. But wait a moment, have you ever spared a minute to meditate: is it just a one-sided story?
My intuition denied it. Facts show the strong economic growth of China mainly originates from two forces, exports and investments, both of which constitute the substantial double-surplus (surplus in current account and capital account), thus breaking the record of US$ 1 trillion in its foreign currency reserve. But it is not always that good as it seems. One major problem in the current Chinese financial market is too much liquidity. Huge amounts of international speculative capitals have been pouring in to seek higher returns, which sources from the probable appreciation of RMB as well as the booming economy (with a high marginal return). Therefore a monetary crisis is possible now if China opens its financial sector fully at a time. Recall the economic history of Japan in 1980s, after Plaza Accord, Yen soared to a peak high, accompanied by the recession of Japanese economy.
Moreover, taking an in-depth look at what¡¯s going on behind the magnificent figures, you¡¯ll find that China is conducting losing business. For every dollar invested in China, the return rate is over 22%, while that of U.S. T-note is just 3%, which constitutes the major part of the portfolio of Chinese foreign currency reserve. Hence it is quite clear China is borrowing money at a much higher price than they lend. Fortunately, the government has noticed this and is planning to establish a special investment fund to earn more profit.
Crises crouch underneath the fantastic prosperity.
Referencing
www.stats.gov.cn
www.people.com.cn
Australian Financial Review
My intuition denied it. Facts show the strong economic growth of China mainly originates from two forces, exports and investments, both of which constitute the substantial double-surplus (surplus in current account and capital account), thus breaking the record of US$ 1 trillion in its foreign currency reserve. But it is not always that good as it seems. One major problem in the current Chinese financial market is too much liquidity. Huge amounts of international speculative capitals have been pouring in to seek higher returns, which sources from the probable appreciation of RMB as well as the booming economy (with a high marginal return). Therefore a monetary crisis is possible now if China opens its financial sector fully at a time. Recall the economic history of Japan in 1980s, after Plaza Accord, Yen soared to a peak high, accompanied by the recession of Japanese economy.
Moreover, taking an in-depth look at what¡¯s going on behind the magnificent figures, you¡¯ll find that China is conducting losing business. For every dollar invested in China, the return rate is over 22%, while that of U.S. T-note is just 3%, which constitutes the major part of the portfolio of Chinese foreign currency reserve. Hence it is quite clear China is borrowing money at a much higher price than they lend. Fortunately, the government has noticed this and is planning to establish a special investment fund to earn more profit.
Crises crouch underneath the fantastic prosperity.
Referencing
www.stats.gov.cn
www.people.com.cn
Australian Financial Review