China's capital flight: Pre- and post-crisis experiences

Cheung, Yin‐Wong; Steinkamp, Sven; Westermann, Frank

doi:10.1016/j.jimonfin.2015.12.009

Cited by 66 publications

(57 citation statements)

References 33 publications

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“…The interest rate differential is mostly insignificant, similar to the results reported in Cheung, Steinkamp, and Westermann (2015). The EMBIG spreads variables, which proxy for country financial risk, generally have the right signs and significant for explaining recorded private flows and the arrival-based travel flows measure: higher financial risks are associated with higher outflows.…”

Section: Behavior Of Abnormal Travel Importssupporting

confidence: 77%

“…This approach is similar in spirit to that of studies on illicit capital flows from trade mis-invoicing (Bhagwati, 1974;Claessens and Naude, 1993;Cheung, Steinkamp, Westermann, 2015). In those papers, trade mis-invoicing is calculated as the discrepancy between the exports of the country in question and the imports of its counterparty after adjusting imports by a freight rate.…”

Section: A the Mirror Approachmentioning

confidence: 97%

“…In addition to the variables included in Clark et al, the travel capital outflows regressions are augmented with two variables that capture RMB/USD exchange rate expectations, which have been shown in some studies (e.g. Cheung, Steinkamp, Westermann, 2015), to be an important determinant of capital flows. The two variables are quarterly change in the two-year non-deliverable forwards (NDF) of the RMB/USD exchange rate, and an interaction term of the change in NDF and the spreads of the two-year forwards rate over spot rate.…”

Section: Behavior Of Abnormal Travel Importsmentioning

confidence: 99%

“…This paper supplements the existing literature on channels for capital flight. Studies on hidden capital flows from emerging market economies or specific to China typically examine capital flight through goods trade invoicing (Bhawahti 1974;Claessens and Naude, 1993;Cheung, Steinkamp, Westermann, 2015;Kar and Freitas, 2012). To my knowledge, Simon (1960) is the only academic study that systematically examined the travel account in the context of quantifying the mismeasurement in the current account, with an application to the U.S. balance of payments for the period 1861-1900.…”

Section: Introductionmentioning

confidence: 99%

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China’s Current Account: External Rebalancing or Capital Flight?

Wong

2017

Int. finance discuss. pap.

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This paper examines an anomaly in China's current account: its large and rapidly growing travel expenditure. Drawing evidence from counterparty data, Chinese international arrival statistics, and gravity equation models extended to travel trade, I find that a significant amount of China's travel spending in the period 2014-2016 could not be explained by accounting factors or economic fundamentals. The unexplained travel imports are inversely associated with domestic growth and positively associated with renminbi depreciation expectations against the dollar, suggesting that they are less likely to be consumption of goods and services abroad than domestic residents' acquisition of foreign financial assets. Adjusted for these potential disguised outflows, China's current account balance could be higher than reported by around 1 percent of GDP in 2015 and 2016, a period when the Chinese economy slowed noticeably as it shifted away from investment-driven growth (i.e. "internal rebalancing"). These results suggest that Chinese households, through the travel channel, have in part replaced the official sector in directing domestic surplus savings abroad in recent years. While the official sector preferred liquid foreign government assets, Chinese households appear to prefer private foreign assets.JEL Classifications: F32, F21, F14, G15

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Section: Behavior Of Abnormal Travel Importssupporting

confidence: 77%

Section: A the Mirror Approachmentioning

confidence: 97%

Section: Behavior Of Abnormal Travel Importsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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China’s Current Account: External Rebalancing or Capital Flight?

Wong

2017

Int. finance discuss. pap.

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“…Among the studies that analyzed China's capital outflows, factors, such as exchange rate policy, preferential treatment for foreign capital, and domestic and foreign return differentials, have been found to influence China's capital flight (Gunter 1996(Gunter , 2004Ljungwall and Wang 2008;Wu and Leslie Tang 2000). These studies mainly focused on the period prior to the 2008-2009 A new study by Cheung et al (2016) found that while expected RMB depreciation encourages capital flight, China's capital outflows in the post-2007 behavior is influenced by quantitative easing or ultra-loose monetary policy in the USA. Other institutional factors, such as exchange rate variability, capital control policy, and trade friction, also contribute to capital outflows from China.…”

Section: Recent Literature Reviewmentioning

confidence: 99%

Assessing China’s recent capital outflows: policy challenges and implications

Chan

2017

China Financ. and Econ. Rev.

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China has experienced a dramatic swing from net capital inflows to large net outflows in recent years. Using balance of payments data, an analysis of the underlying factors that drove China's recent capital outflows since mid-2014 were (1) corporates adjusting their balance sheets to reduce foreign exchange exposure or to unwind "carry trade"; (2) Chinese corporate and households seeking to diversify assets offshore; (3) Renminbi internationalization push, which facilitated capital outflows and capital flight by encouraging outbound investment; and (4) higher US interest rates and strengthening US dollar all likely further amplified the above factors. The capital exodus to some extent reflects policy difficulties that China's authorities face in managing economic reforms. In particular, China faces tough challenges in balancing the benefit/risk trade-off from capital account opening and attempting to introduce more flexibility to the currency. To stabilize capital flows and currency expectations, clarity and transparency in communicating policy objectives are essential while the implementation of structural and institutional reforms to correct economic imbalances (such as overcapacity and debt) and improve macroeconomic fundamentals are imperative and particularly pressing.

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China's new normal and the implications to domestic and global business

Abdul‐Rahaman

Yao

2019

Int. J Fin Econ

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We use a VEC model to analyse China's “new normal” and how they affect aggregate components of China's balance of payment account, which represents China and the rest of the world. We assessed whether the tightening financial conditions impact China's long‐run growth. We also assessed the reduction in savings and its effect on growth. We further assess the claim of increasing net capital flows through a stable currency. We also compute China's currency gains and losses in CFET countries using the approach in and analysed how reducing national savings will impact on currency gains in the FX market. Analysing the fluctuations in capital flows, and its determinants, are significant for the restructuring since the government has undertaken to reduce his participation in direct financing. The research found that the gradual tightening of monetary policy if core inflation continues to pick up will not affect the long run current account growth, whereas reduced savings will have a short‐run adverse effect on growth. These conclusions support the assertion in. Furthermore, the liberalization of the financial systems reduces growth in the short run, whereas the fluctuations in renminbi have no impact on the capital account. We, therefore, do not find evidence of currency stability, aiding and facilitating net capital flows. Also, the decision to tighten policy rates and the effects on the capital account depends on the margin of the change. Lastly, the liberalization reforms will increase currency gains and also trigger currency appreciations.

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China's capital flight: Pre- and post-crisis experiences

Cited by 66 publications

References 33 publications

China’s Current Account: External Rebalancing or Capital Flight?

China’s Current Account: External Rebalancing or Capital Flight?

Assessing China’s recent capital outflows: policy challenges and implications

China's new normal and the implications to domestic and global business

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