Report
A serious problem for China: It cannot abandon the combination of capital outflows and financial repression
China’s debt level is high and rising. This requires there to be financial repression, i.e., in particular, abnormally low interest rates relative to growth. But for China’s interest rates to be able to be abnormally low relative to growth, capital outflows must be controlled , failing which capital outflows would be massive (as was the case from 2013 to 2016). The Chinese Government is trying to attract more foreign capital to China. This makes capital outflows less of a danger, but not so much that it can remove the capital controls, as the recent period has illustrated . This necessary arrangement (financial repression combined with capital controls) is a clear problem for China: it prohibits it from conducting a normal interest rate policy; it leads to an inefficient use of Chinese savings; it entails the constant risk of an asset price bubble.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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