Bo Peng

China Outlook: Policy Adjustment Risks May Be Growing

With the stock market way down and showing no sure promise of sustainable rebound and the housing bubble bursting (though not nearly as severe as in US/UK), the carry cost for hot money in China is high. This is decidedly different from last year when hot money could easily finance itself from asset bubbles there, even without relying on RMB appreciation. So the incentive for hot money to hang on and for one-off revaluation are decreasing.

Looks to me the call for one-off revaluation is more of the existing hot money to make a bundle and get out. It would have been a good idea from the Chinese economy and monetary policy point of view to do one-off revaluation last year. But since they missed the chance, now it's a BAD idea. While previous hot money bets have mostly paid off well, the class of 08 will have to bail out or become longer term while being contend with relatively small returns in the interim.