Some 10.9 billion yuan (US$1.58 billion) has left China through Hong Kong this Tuesday, the highest net outflow since 2015.
CNY has fallen against the dollar and is now at 6.87, down from 6.7 a month ago.
The Hong Kong dollar (HKD) has fallen to a 33 year low with the Hong Kong Monetary Authority intervening twice.
In contrast, USDT is at a premium, buying 7 CNY per dollar in Over the Counter (OTC) markets.
“China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a “match,” it would be game over, we win! In any event, China wants a deal!”
So said President Trump as investors now seemingly reconsider the prospects of growth and thus the best market for investment.
“The stronger the US economy is, the bigger outflow will be,” said Guotai Junan Securities’ chief strategy analyst Li Shaojun, adding:
“Northbound funds have profited from the prior surge in the market. Now they are taking profit and running away quickly as bearish news emerged.”
Where they’re going to isn’t very clear, but crypto trading volumes have been rising considerably and continue to rise, now reaching circa $117 billion.
Much of it is from crypto only exchanges and USDT which is handling an incredible $33 billion in trading volumes for the past 24 hours.
Chinese investors are able to buy USDT in peer to peer markets where they can pay each other in some cases with AliPay.
What rare CNY crypto pair is trading, after they banned crypto exchanges, is showing a premium of about $200 for bitcoin.
Suggesting there has been a considerable increase in crypto demand from China beginning around the same time as Trump announced tariff hikes.
The trade negotiations apparently haven’t been going very well with prospects now of potential tariffs on effectively all Chinese goods.
As America’s biggest trading partner, that may affect China’s economy, and thus their stocks as well as their fiat money.
Shanghai’s Composite Index of stocks has fallen by about 13% since April, while cryptos have been rising during that time and in many cases have doubled or more.
The bottleneck in trade negotiations apparently seems to be the question of enforcement. It looks like America effectively wants to have oversight on say intellectual property enforcement so as to be sure they are following through with the deal.
China has suggested that would be a breach of their sovereignty, with all of this sounding a bit like a stalemate.
The only tool in China’s arsenal might be the selling of US Treasury bonds as any tariffs they can impose would be a fraction of US tariffs.
If they play that card, however, they have nothing left so it looks unlikely. Just as a deal looks somewhat unlikely at this stage.
What may happen, therefore, is what’s happened previously: yuan devaluation. As Trump suggests, they might print money to lower its value against the dollar and thus to effectively cancel out the tariffs if yuan drops say 10% or 20%.
Trump is perhaps hinting that this time he might pressure FED to meet them at it by devaluing the dollar in yet another round of currency wars that have been ongoing in one form or another for a decade.
Dollar devaluation usually benefits western stocks and cryptos, as does Yuan devaluation. When the latter happens, however, Chinese stocks tend to perform badly because they’re so reliant on exports which become cheaper and thus lower their profits initially.
If they do go ahead with such devaluations, squeezed out might be Europe, but Trump is seemingly sweetening them by not imposing tariffs on automakers.
Making all this a complex game of chess. The preferred outcome might be for China to open their markets, starting with crypto exchanges, but their somewhat authoritarian system might perhaps not afford to loosen protectionism.
So for now, Trump is clearly winning. Whether that will continue to be the case, remains to be seen.