China sees a massive capital flight, putting its currency, the yuan, under pressure. For that reasons, says accounting professor Paul Gillis to the VOA, are capital flight and China´s garage sale of US treasuries closely linked.
An important reason for the slide in yuan is continuous capital flight from China. High-end Chinese savers have demonstrated a strong tendency to sneak money out of the country despite strong official measures to prohibit it. But if these savers lose confidence in the yuan, analysts say they most likely would suddenly try to get their money out of China, which could make the financial crisis a self-fulfilling prophecy.
“China has experienced significant capital flight. What that means is the Chinese are converting their RMB savings into dollars and investing abroad,” said Paul Gillis, a professor at Peking University’s Guanghua School of Management. “When Chinese convert RMB into dollars, China uses its U.S. dollar holdings to buy the yuan. If it did not do so, there would quickly be an imbalance between buyers and sellers of the yuan, and the value of the yuan would plummet.”
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