A number of prominent Chinese economists have argued in favor of loosening restrictions on the movement of money into and out of the country.
They argue that a weakening dollar presents a special opportunity to raise the value of the yuan abroad.
According to Miao Yanliang and Ju Jiandong, this year and next represent a “strategic window” for developing the capital account, as the yuan’s appreciation creates a favourable environment amid rising global concerns.
Given President Xi Jinping’s objective of having the yuan “widely used” in international trade and finance, Chinese authorities may focus their efforts on promoting a far more open flow of capital, they said.
Can we take this seriously? Sure, we can.
The yuan has been rising fast, and given that the entire Chinese domestic economy is in a depression as the property market collapses, exports are the only bright spot.
The last thing China needs now is to lose competitiveness.
That said, Xi Jinping may fool himself into thinking his dog of a currency needs to be, and will be, internationalised.
Why do I call it a dog of currency?
Because if he does open the capital account, China’s immense glut of savings, dearth of investment options, and depressed domestic economy will flood the world with yuan.
It is only a year since China was considered “uninvestable”. This has not turned around for any fundamental reason. The outlook is still grim, with some AI silver lining.
The primary reason for the pivot was that the Xi to Trump pivot as the American madman outmaddened the Chinese madman.
But is that really a sustainable recipe for capital flows? Lol.
Anyways, let’s not write this possibility off entirely on that basis and examine what it will mean for Australia if it happens.
A couple of things, none of them good.
First, Chinese capital will flood the Aussie real estate market. Let us recall what happened on the two occasions when the CNY fell against the AUD.
Chinese raiders flooded Australian property, particularly in 2015, when the Chinese capital account was open.
Indeed, as MB fought Caberra to close that egregious loophole and failed, and I was summoned to the HRC for being racist for trying to stop the dehousing of local youth, it was only when Beijing closed the capital account that the trade stopped.
Second, this would likely drive interest rates and the AUD higher than otherwise, in a horrifying cycle of capital chasing housing, interest rate, and currency gains.
Third, Albo’s China grovellers will do nothing to stop it and will praise it all as increasing the housing stock while ignoring demand.
Fourth, One Nation will win the 2028 election in a boilover.
