China's possible net capital flight is in excess of $800 billion in 2015, liquid reserves could be depleted sometime in 2017, which could spell market uncertainty ahead.
http://seekingalpha.com/article/3985866-shocking-breakdown-chinas-foreign-reserves-bullish-gold
China used nearly 10% of its reserves between November 2015 and February 2016 through direct intervention. This reversed in March and April 2016 with small back-to-back gains, but returned to the December 2011 level in May 2016.
In efforts to boost short-term dollar liquidity China has been selling US assets. Since the peak in 2014 US Treasury data show that China has sold around $250bn of US treasuries — that has likely used to fund direct intervention efforts. Beginning in the same period and ending in March 2016, China reduced its US equity holdings by 38% to $201bn.
http://seekingalpha.com/article/3984019-safe-keeping-tab-chinas-reserves
A surge in China's official figures for imports from Hong Kong has spurred familiar suspicions of illicit currency trading, but it has also raised an intriguing question.
Why have China's regulators allowed it to go on?
After China's General Administration of Customs (GAC) reported trade data for May this month, foreign news organizations were quick to question a 161.7-percent jump in imports from Hong Kong in yuan terms.
The London-based Financial Times said the increase in U.S. dollar terms from a year earlier hit a record 242.6 percent, “suggesting no let-up in the ploy of over-invoicing to move cash out of China.”
But the Chinese government is aware of the problem, but it is difficult to change from a exporter to a consumer driven country; it requires changes in the behavior of the people, but they do not trust the government. This what Wu Xiaoling, vice chairman of China's National People's Congress Financial and Economic Affairs Committee said yesterday:
“helicopter drop,” a tool that broadly refers to a direct transfer of newly printed money to the public while bypassing the usual banking channels, is gaining currency. But she expressed skepticism at the practice.
“Helicopter money does not come across as a good solution,” Wu told the Boao Forum for Asia in Hong Kong on Tuesday. “It seems supportive to lifting consumption,” she said, but “unfair to those who are hard-working and dare to innovate.”
Wu was interpreting “helicopter drop” as a two-pronged apparatus to sub-par economic growth, which involves creating liquidity in the system and even allocation of such liquidity among the public. The concept was first coined by economist Milton Friedman, and later construed by the former U.S. Federal Reserve Chairman Ben Bernanke as a broad-based tax cut.
Wu highlighted that “technology revolution,” especially in the realm of internet and information technology, is needed for rejuvenating the global economy. She also called for structural reforms and deeper marketization of the financial system in the Chinese context.
“There are two things that help a society grow,” said Wu. First, the government should encourage and reward those who innovate and contribute to corporate, or social, developments through tax and fiscal policies. Second, social security should be enhanced for laborers who have lost their jobs.
Wu acknowledged that China's deficient retirement scheme is currently a stumbling block to the country's economic development. “A lot of inefficient companies cannot exit the market because our retirement protection, unemployment benefits system, and social safety net are simply not well-developed,” said Wu, alluding to the overwhelming social costs that are likely to arise from massive layoffs.
She said the Chinese government is considering committing some stakes of state-owned enterprises to social security funds. “That would be conducive to stimulating household consumption, and more so, to getting rid of unproductive firms.”
But Wu emphasized that an efficient economy had to be meritocratic. “Society will lose its vigor if money is evenly distributed among everyone,” she said.
There is a very high probability for big problems. Cash is King!
China Forwarders Freight Index (CFFI) China- North America is down from 2515 to 1425 in a year !
http://en.shippingchina.com/scfi/index/detail/line_id/1/date1/2015-06-01/date2/2016-07-06.html
thanks AdmSmith.
China’s Looming Demographic Crisis: Guns or Canes?
http://www.freerepublic.com/focus/f-news/3446530/posts?page=10#10
The US and Japan — remember Japan? — had a similar dance going on from approximately the OPEC embargo (when US made cars were too large basically overnight; as Red Forman said, “the last time I was that close to a Japanese machine, it was shootin’ at me.”) until the late 1990s. They thought, great, we’ll get rich with this huge export surplus. Instead, they wound up having a nice big crash and have spent the years since struggling.
Like China now, the Japanese couldn’t afford to sell their own products into the home market, so they expanded into most of the countries of the Far East, building plants to sell in areas with lower labor costs. Eventually, it made no sense to sell more expensive Japanese-made goods to the US market, and, well...
The Chinese have spent the past 15-20 years trying to find some place in the world with an even lower labor cost than theirs, in order to sell into the Chinese market. They’ve tried in Latin America and Africa. My guess is, they’ll use 3-D printing and other automation to accomplish this, which will work out well for them as their labor force vanishes as a long-term consequence to their draconian one-child laws.