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ICICI Securities Report
China's foreign exchange reserves declined by $130 billion for January-April 2022, despite cumulative trade surpluses of $215 billion over the period, suggesting substantial capital flight.
This severely constrains China's ability to ease monetary policy, especially amidst a concerted global monetary tightening.
China's M2 money supply is up 500% since August 2008 (pre-global financial crisis), while U.S. M2 has expanded only 180% over the period.
China's record monetary growth (the biggest monetary expansion by any country in history) has funded massive over-capacity in industry and the property sector.
As liquidity tightens globally, it is becoming progressively more difficult for China to maintain sufficient domestic liquidity to sustain demand for its vast industrial and real-estate capacity, with the latter particularly seeing downward price pressure.
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