Convinced that China is at the
beginning of an economic slowdown, with the business cycle peaking,
Morgan Stanley’s Asia Pacific chief economist Andy Xie says that
Chinese and other Asians are sitting on “mountains” of hot money –
roughly US$700 billion of it, he says, of which 50% may be sitting in
China – 25% in yen and the rest in other Asian currencies… “When
China reports decelerating export and industrial production data, the
market might accept the China slowdown scenario and ditch its
revaluation expectations. That could be the trigger for the hot money
to leave Asia.”

Some of the hot money is the result of Chinese
corruption in state-owned enterprises, principally in the banking
system, and most of this is believed to be still in China mainly in
short term deposits waiting for a revaluation of the exchange rate,
which is unlikely to come at this stage.

Fearing capital
flight of a much larger dimension than caused the Asian financial
crisis in 1997-98, Xie says that China should tighten regulations and
begin an anti-corruption campaign.

Read the whole article here.

Peter Fray

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