Capital Flight From China Blamed Over Weak Economy, Business Regulations

In October, there had been growing fears of a growing number of money outflows from China. A foreign exchange regulator downplayed fears over a weakening economy and insisted that there is no capital flight, and that the money outflows were normal.

However, fears over capital flight grew over the last few months. International Business Times reports that rumors of another currency devaluation amid other obvious economical factors like the country’s weakening economy, have contributed to such fear. The news site said the second devaluation was meant to make Chinese exports cheaper, ergo more attractive to outside investors. The second currency evaluation has since been denied by the government.

Ex-Morgan Stanley chief economist Andy Xie said the second devaluation could be catastrophic for the mainland. He said, ‘They’d over-invested, there was huge overcapacity due to speculation, and there were no real profitable opportunities – but the money supply kept growing. Then one day the speculation stopped, and there was too much money in the economy – but the government didn’t want to raise interest rates. And then people wanted to leave all at once and then the currency collapsed – and if the money leaves you have chaos.”