Date
20 August 2017
The yuan lost 2.5 percent against the US dollar last year and is down almost 1 percent this year. However, it's still riding high against other currencies.Photo: Bloomberg
The yuan lost 2.5 percent against the US dollar last year and is down almost 1 percent this year. However, it's still riding high against other currencies.Photo: Bloomberg

Why China super rich are fleeing with their money

China’s weakening currency is making the country’s super rich nervous.

Many are fleeing with their cash — not all of it, but enough to bid up prices of luxury real estate from Mayfair to Manhattan to Mission Bay, a waterfront neighborhood of Auckland, New Zealand, according to the Wall Street Journal.

They are among the top 1 percent of urban households — just two million people — in which much of China’s wealth is concentrated

China’s financial authorities are trying to ensure that the remainder of the wealth doesn’t disappear across its border.

A potential trigger for a disorderly exodus of capital that could threaten the entire financial system would be a continued decline in the value of the renminbi.

That’s one reason a sharp yuan drop is unlikely, even though a slowing economy is increasing domestic pressure on the government to let the yuan fall to boost exports, WSJ said.

In recent weeks, there has been evidence financial authorities are reversing years of intervention in foreign-exchange markets aimed at stopping the yuan from rising too rapidly against the dollar.

Now the government appears to be secretly propping it up — or at least trying to prevent a sharp fall.

That doesn’t mean the yuan will halt its gentle downward trajectory.

It lost about 2.5 percent against the US dollar last year and has edged down almost 1 percent this year.

However, against the currencies of China’s other major trading partners, including Japan and those in Europe, it’s still riding high, partly a result of its loose peg to the dollar.

Beijing’s apparent efforts to defend the yuan in the face of the weakest growth in China in almost 25 years reflect a variety of national concerns.

Under President Xi Jinping, a powerful yuan has become a symbol of China’s global resurgence.

The thrust of Chinese currency policy has been to erode the influence of the mighty dollar in international trade and investment and to persuade foreign governments to include the yuan in their baskets of foreign-exchange reserves.

A volatile yuan would work against all those goals.

In 2011, a study by Victor Shih, then a professor at Northwestern University, showed that the richest 2.1 million Chinese households controlled a staggering US$2 trillion to US$5 trillion in financial assets, such as stocks and bonds, and real estate.

If they liquidated 30 percent of their wealth and moved the proceeds out of China, they would drain US$1 trillion or more from the reserves, according to Shih.

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CG/RA

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