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Following up my previous post on China’s hot money problem, here is another update (source: WSJ):
Capital control will never be effective. This is a classical problem for fixed-exchange rate system. No easy way out. It’s just a matter how big will be the hit when all hot money tries to get out at the same time.
A one-time reevaluation or even more dramatic measures may be on the horizon. And when it happens, don’t get surprised.
China is riding a tiger: the prospect of future currency rise and fast economic growth will certainly attract huge inflow of international short-term capital, or the so-called “hot money“. This will happen even when Chinese government imposes capital control.
At certain point, these hot money will want to flow out once investors realize their profits or just because it becomes too risky to stay in China. When this happens, China’s property market and stock market will face huge downside risk. And that’s when the housing market bubble will burst.
Interview of Andie Xie, Part I