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Jakarta Post

Indonesia eyes capital flight from China

  • Anton Hermansyah

    The Jakarta Post

Jakarta   /   Mon, January 18, 2016   /  04:05 pm
Indonesia eyes capital flight from China Trade talks: President Joko Widodo (center) and Trade Minister Thomas Lembong talk about exports after the opening ceremony the Trade Expo Indonesia 2015 in Jakarta on October 21, 2015.(thejakartapost.com/wienda Parwitasari) (center) and Trade Minister Thomas Lembong talk about exports after the opening ceremony the Trade Expo Indonesia 2015 in Jakarta on October 21, 2015.(thejakartapost.com/wienda Parwitasari)

Trade talks: President Joko Widodo (center) and Trade Minister Thomas Lembong talk about exports after the opening ceremony the Trade Expo Indonesia 2015 in Jakarta on October 21, 2015.(thejakartapost.com/wienda Parwitasari)

Indonesia is eyeing the investment and industrial relocation that is likely to flow from China because of the country'€™s transformation from being an investment-based economy into a consumption-based one.

China's exports have been sluggish as the global markets have become saturated. With China's transformation into a consumption-based economy, a capital flight to Southeast Asia would follow, said Trade Minister Thomas Trikasih Lembong.

"However, Malaysia, Vietnam and the Philippines will be our competitors," he said at the press conference in Jakarta on Monday.

The People's Bank of China has since November 2015 maintained its benchmark interest rate at 4.35 percent, the lowest in 20 years since 1996. Amid the decreasing investment spread, the situation is upside down to what happened in China.

In 2009, when the US'€™ Federal Reserve funds rate was at 0.25 percent, global speculators borrowed money in US dollars at nearly zero interest and put it into Chinese yuan, which was providing about 5 percent interest.

Now, according to Thomas, the speculators are doing it the other way around: borrowing money in yuan at only about 4 percent interest and investing it in the currencies of other countries that provide much higher interest rates.

'€œIt means a capital flight from China. To counter the situation, the People's Bank of China has issued a measure to limit the borrowing,'€ he said.

As the result, on Jan. 12, the cost of borrowing yuan skyrocketed to 66.8 percent in Hong Kong. Amid the current slowdown plaguing China, the speculators began to see the country as a vulnerable place for investments.

Bank Central Asia economist David Sumual said that the International Monetary Fund (IMF) decision to put the yuan into its currency basket has made the currency more flexible as one of the world'€™s main currencies for trans-boundary investments, as well as for speculative trades.

"People and speculators are using the situation to generate profits. The Institute of International Finance estimates China's capital flight in 2015 will reach $478 billion," David told thejakartapost.com. (ags)(+)

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