hot money fleeing china

exports), China's foreign exchange reserves are not even close to keeping pace.Readers may recall that a massive amount of money flowed into China, a good bit of it disguised (FDI was one of the suspect categories) because RMB appreciation looked to be a one-way trade. Given China's currency controls, there were limited options for playing that point of view from overseas, hence the funds influx.But now that China has quietly gone back to a hard peg to the dollar, the dreams of a quick profit have been dashed, and the hot money is making an exit. Per Brad Setser (part of a longer and useful post, hat tip reader Michael). The reserve requirement mention comes about because the PBoC requires banks to hold some of their reserves in dollars, which means that the true FX reserves are greater than the official reserves:


The trade surplus should have produced a $115 billion increase in China’s foreign assets. FDI inflows and interest income should combine to produce another $30-40 billion. The fall in the reserve requirement should have added another $50-55 billion (if not more) to China’s reserves. Sum it up and China’s reserves would have increased by about $200 billion in the absence of hot money flows. Instead they went up by about $50 billion. That implies that money is now flowing out of China as fast as it flowed in during the first part of 2008.And in December, the outflows were absolutely bruta....$70 billion plus in monthly hot only outflows … That’s huge. Annualized, it is well in excess of 10% of China’s GDP. Probably above 15% …