1. How many US dollars have flowed into China in the past 10 years?
As of September 2015, the outstanding U.S. dollar debt distributed around the world has reached 9.8 trillion U.S. dollars.
Among them, China’s US dollar debt accounts for approximately 7.7%, totaling approximately US$750 billion.
But in fact, the dollar debt flowing into China is far more than the US$750 billion.
Because, in the past 10 years, China has been the fastest growing and most financially attractive country in the world, and the RMB has appreciated at an average annual rate of 3.7% in the past 10 years.
From this point of view, other countries have every incentive to exchange borrowed US dollar bonds for RMB to invest in China.
Based on this logic and calculation, Dawai Capital Markets estimates that China’s domestic U.S. dollar debt is likely to have reached 30% of the total U.S. dollar debt, or 3 trillion U.S. dollars.
▌2. How much US dollar foreign debt remains that has not yet been replaced (repaid)?
Since the exchange rate reform on August 11 last year, everyone has begun to realize the seriousness of the problem of RMB depreciation.
However, these debtors holding U.S. dollar debt did not take advantage of the time window when the Federal Reserve delayed raising interest rates and the RMB stabilized to replace this part of the U.S. dollar debt, as they imagined.
There is no direct indicator in China regarding the amount of domestic dollar debt that has been replaced, but most domestic dollar debt will be generated through banks in Hong Kong.
Therefore, the US dollar bond data of Hong Kong banks is selected as the indicator here.
This indicator reached its peak at the end of 2015, and the cumulative decline since then has been within 10%.
As of the end of March this year, total loans from Hong Kong banks to outside Hong Kong (mainly China) fell by only 4.5%.
Based on this indicator, the replacement part of domestic US dollar debt should not exceed 10%.
Therefore, it is too early to say that China’s foreign debt denominated in US dollars has been paid off.
▌3. How true are our “trade surplus and foreign direct investment” figures?
Under traditional thinking, everyone believes that China has a huge trade surplus and foreign direct investment.
As long as China continues to maintain a high savings rate, China's high trade surplus will continue; since the inflow of foreign direct investment is a long-term investment, it is unlikely to be concentrated in the short term.
However, this logic only holds true if past trade surplus and foreign direct investment data are real and valid.
According to calculations by Dawai Capital Markets (Japan's Daiwa Capital Markets Company), my country's false trade from 2005 to mid-2014 amounted to US$358 billion, and false FDI (foreign direct investment) reached US$1.09 trillion.
By the same calculation, by the end of 2015, the false amounts of trade surplus and FDI had reached US$496 billion and US$1.59 trillion respectively.
As of April this year, China's foreign exchange reserves were US$3.22 trillion.
According to Dawai's calculations, only 51% of the US$3.22 trillion in foreign reserves is brought about by real trade surplus and real long-term foreign investment. The remaining 49% of foreign reserves are caused by short-term and speculative investment.
driven by international capital.
Therefore, the downward pressure on foreign exchange reserves and the pressure on capital outflows are likely to be much higher than we expected, because the liquidity of short-term, speculative international capital is much more flexible than the liquidity of capital brought by FDI and trade.
Much faster.
▌4. Is the Chinese government capable of preventing this capital outflow?
The inflow of U.S. dollars into China over the past many years has accumulated to about 3 trillion U.S. dollars, which means that after the appreciation trend of the RMB disappears and China's economic growth is weak, at least these 3 trillion U.S. dollars will have an incentive to flow back abroad.
The Chinese government’s recent capital controls appear to have choked off capital outflows.
But is this the case?
Is the Chinese government really capable of preventing this capital outflow?
First, let’s analyze the US$3 trillion of funds flowing into China and the composition of foreign assets in our hands.
If we regard the inflow of US$3 trillion in assets as the enemy, then the foreign assets we hold are bullets to attack the enemy and shields to block invasion.
Regarding our enemy’s “3 trillion U.S. dollars”, compared with other countries, no emerging country can be found to have more capital inflows than us.
Therefore, China is the country most seriously threatened by capital outflows among all emerging economies.
Some people say, "Although my country has the largest capital inflow, our country's foreign assets are already over 6 trillion, which is enough to withstand the threat of capital outflow." This is not the case.
55% of my country's foreign assets are foreign exchange reserves.
There are three major shortcomings in using foreign exchange reserves to intervene in the RMB exchange rate: 1. The consumption of foreign exchange reserves will bring about expectations and panic of RMB depreciation.
When the government uses foreign exchange reserves to prevent the depreciation of the renminbi, the foreign exchange reserves will be quickly depleted. For example, from last year's exchange rate reform to the beginning of the year, foreign exchange reserves quickly shrank by nearly 400 billion US dollars.