This is never a great sign when the people who you want investing at home start seeking safe havens abroad. Before the stock market crash in Russia last year, the wealthy started moving money into Europe, snatching up real estate in posh locations just in case the market went south, which it did. Along the French Riviera and in the Alps, many credited the booming real estate markets to the wealth Russians. Now that the Chinese are moving money out, what does this say about the growth potential in China? The government still insists 8% is achievable but if the rich are buying diamonds rather than staying hitched to the local economy, maybe the problems are deeper than previously thought.
As Chinese citizens are starting to send more money out of the country, foreign investors are pulling money out too, and slowing the pace of new investment.
“There is a recognition for sure that China is slowing down, so why keep your money there?” said Henry Lee, a Hong Kong fund manager.
Nobody knows how long this trend will last.
If China’s series of economic stimulus measures are successful, then the Chinese economy could rebound later this year and start drawing back money on the same scale that it did over the last decade.
Total outflows in the fourth quarter were as much as $240 billion, but this is using the broadest possible definition and includes everything from capital flight to a slowdown in repatriation of overseas profits by Chinese companies.
There is no good data assessing the motives of those moving money out of China.
Most troubling for China would be if a sizable portion of these disparate streams represented capital flight — people taking their money out because they worry about the stability of the country.
Though there are myriad reasons to move capital around, there is also cause for concern: Chinese authorities announced Monday that 20 million migrant workers had lost their jobs. If they do not find new work, these workers could form a volatile class of unemployed.
Even more crucial, Chinese individuals and companies placing more of their money outside China could affect one of the constants of international finance over the last five years: China’s central role in bankrolling American trade and budget deficits.
