The hidden story in China’s FDI statistics

However, the fact is that enormous amounts of liquid money held by Chinese individuals and companies have, for many years, been anxiously trying to leave China and the yuan as an asset, and instead park themselves in non-Chinese assets such as condominiums in Manhattan or Sydney, US stocks, Singapore bank accounts or luxury goods. That created the devaluationary pressure in the exchange markets.

China is getting richer and, by some accounts, it may already be co-equal with the United States as the world’s largest economy, if one considers the World Bank’s implicit estimate for the PPP (purchasing power parity) theoretical exchange rate for the yuan, below 4 per dollar.

In short, there are hundreds of billions of dollars’ worth of liquid assets trapped inside China – trapped because current rules do not allow the Chinese to convert their yuan into other currencies unless there is a commercial justification.