The Renminbi Needs Ready Cash
Conventional wisdom is that China's biggest Trump risk is the introduction of hefty tariffs that would make Chinese exports uncompetitive. While trade issues make good media sound bites, a bigger danger — both for China and for financial markets' stability — is tax of another sort.
The US president-elect's campaign promise to change tax laws to reward American companies' repatriation of capital is casting long shadows over the renminbi.
The connection may not seem obvious. But Chinese policymakers have been wrestling (without much success) with the vicious cycle of rising capital outflows driving further renminbi devaluations, in turn driving even bigger and faster outflows.
US tax code changes that make it attractive to repatriate American capital are not good news for an economy that saw net outflows estimated at close to $1 trillion in 2015 and $500 billion in the first three quarters of this…
