Xie Jinhe, chairman of Caixin Media, posted on Facebook on May 3 that with a strong dollar, there must be major events in the world. He said that the market preference for the U.S. currency would cause serious damage to vulnerable emerging economies. Besides, the global economy will certainly face a difficult time ahead.
Xie said that amid the Russia-Ukraine war, high inflation, and U.S. Federal Reserve’s tightening policy, U.S. bond yields had surpassed 3%. Besides, the U.S. dollar index reached a 19-year high of nearly 104.
By showing a 40-year line chart of changes in the U.S. dollar index, he pointed out that every time the U.S. dollar exchange rate rises significantly, the world will undergo tremendous changes.
He took some cases as examples.
The first case dates back to February 1985. At the time, the U.S. dollar index hit a record high of over 164. This year also witnessed the U.S. and Japan signing a Plaza Accord, pushing Japan to fall into a 30-decade period of low growth and deflation until the 2000s.
Xie added that the U.S. dollar index reached its peak of nearly 104, oil prices rose to 147.5 dollars in 2007, and then a financial bubble occurred.
In his opinion, when the U.S. dollar and U.S. bond yields are rising, funds may flow out of China on a large scale. Under the closed manufacturing industry and the real estate bubble crisis, China’s economy will face a severe challenge.
Xie further mentioned past predictions of economists that China’s annual economic growth rate will maintain at 8%. By 2030, China will surpass the U.S., becoming the world’s largest economy. However, China is currently struggling to keep 5%.
He added that if the outflow of funds accelerates, China may fall into the trap of Japan’s 30-year loss. The strong dollar is just the beginning of another great change in the world.
In fact, capital outflows are happening in China.
The Institute of International Finance reported that foreign investors withdrew 11.2 billion dollars in bonds and 6.3 billion dollars in stocks from the Chinese market in March.
In its latest quarterly report, Zero2IPO Research Center shows that foreign investment in China plummeted 60% in the first quarter of 2021.
These figures signify the market tends to shift away from China.