,
5 tweets,
2 min read
Read on Twitter
A bit more on the role of portfolio flows in China's balance of payments.
The most important thing is that the current account, not portfolio flows, is the more important source of fx for China, and the CA surplus is now rising
1/x
The most important thing is that the current account, not portfolio flows, is the more important source of fx for China, and the CA surplus is now rising
1/x
There was a brief period last year when portfolio inflows generated more fx than the current account --
But that was the product of two one-offs.
1) Russia's decision to diversify its reserves out of the dollar
2) & some strange seasonality in China's q1 18 BoP
2/x
But that was the product of two one-offs.
1) Russia's decision to diversify its reserves out of the dollar
2) & some strange seasonality in China's q1 18 BoP
2/x
I suspect the biggest source of demand for CNY assets -- at least on the fixed income side - isn't going to be US investors, but rather bond investors in Europe and Japan who cannot get yield at home.
(e.g. there is a limit to what the US can do on its own)
3/x
(e.g. there is a limit to what the US can do on its own)
3/x
Finally, there actually is a two way flow --
and China has historically controlled the outflow side closely. the 05-06 outflow came from Chinese state banks helping take pressure off China's reserves. 09 was the CIC buying equities abroad, etc
4/x
and China has historically controlled the outflow side closely. the 05-06 outflow came from Chinese state banks helping take pressure off China's reserves. 09 was the CIC buying equities abroad, etc
4/x
The most recent round of portfolio outflows is primarily from the state banks. No doubt China could shut down this outflow if it wanted to, offsetting lower inflows
Bottom line: China has a lot more tools for managing a drop off in inflows than is commonly realized.
5/5
Bottom line: China has a lot more tools for managing a drop off in inflows than is commonly realized.
5/5
