While the world is trying to get to grips with the fallout of a possible Brexit, very few of the effects for China can be sure, with the exception of the currency trade, says economist Arthur Kroeber to Bloomberg. At this stage, the risks seem fairly limited.
Arthur Kroeber, the founding partner and managing director at research firm Gavekal Dragonomics.
“The only major impact that we can identify is on the currency. To the extent that Brexit triggers a broad-based dollar rally that’s sustained, that makes management of the exchange rate harder. If the dollar goes up a lot then Chinese corporations have a lot more incentive to hold dollars rather than renminbi. They would start to shift money one way or another from renminbi into dollars, and that gets recorded as a capital outflow. Then in order to maintain the exchange rate the People’s Bank has to spend reserves.”
“If you are spending them at a $100 billion a month as they were at the peak in January and February they probably have about six months of spendable reserves before they get to a point where they say it’s not worth it any more. Based on what we’ve seen so far it doesn’t seem like the Brexit outcome is large enough to make that a high risk in the next month or so but who knows?”
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