China faces foreign outflows and wave of bond defaults threat

 

China faces foreign outflows threat, with instability fuelled by US $1.9 trillion coronavirus relief

• Potential for a reversal in capital inflows and a possible wave of bond defaults are two of the biggest risks facing China’s economy this year, said former central bank adviser Li Daokui
• The instability is being fuelled by the US$1.9 trillion American Rescue Plan, which will benefit China by boosting exports, but also add to risks

 The American Rescue Plan Act was signed into law in the United States in March. Photo: AFP

China faces the threat of foreign outflows from the second half of the year as rising borrowing costs in the United States drives investors out of emerging markets, according to a former adviser to China’s central bank.

The potential for a reversal in capital inflows and a possible wave of bond defaults are two of the biggest risks facing the economy this year, Li Daokui, a former member of the People’s Bank of China’s monetary policy committee, said in an interview.

The instability is being fuelled by the US$1.9 trillion American Rescue Plan, which will benefit China by boosting exports, but also add to risks, he said.