(Ecns.cn) – Betting against China's stock, property and foreign exchange (forex) markets has continued unabated in recent years, and experts say the short-selling behavior has undeniably affected the country's economy. The government is now cautiously trying to handle the situation with macroeconomic measures.
On Dec. 15, China shares slid again, poised for a sixth straight loss. The Shanghai Composite Index finished down 2.14% at 2,180.9 points, a new lowest record in 33 months.
On Dec. 6, the yuan fell sharply against the U.S. dollar to 6.3651, hitting its permitted trading range for a fifth straight day and marking the first consecutive decline to a low end of daily trading in three years.
In November, 11 of China's 30 largest cities saw residential property sales decline from a month earlier, according to the China Index Academy. And, according to Centaline Group, China's property market saw more than 600 mergers and acquisitions that eliminated small industry players in the first ten months.
The past 11 months have not been easy for most Chinese investors. Under the circumstances, risk reduction has been a theme, especially as the end of 2011 approaches.
Though there are many factors that impact the Chinese economy, experts believe that short selling behavior by foreign institutions has played a role that should not be overlooked.
In September 2011, when Blackstone Group LP sold its stake in Shanghai's Channel 1 shopping mall to Hong Kong's New World Development Co for 1.46 billion yuan ($230 million), marking its first exit from a real estate investment in China, the public began to notice the trend.
From then on, foreign institutions such as American International Assurance Co and Allianz Group all frequently dumped real estate property in China amid conjecture that the country's property market would swing wildly from boom to bust.
As property prices slid, in November Bank of America and Goldman Sachs Group reduced their shareholding of China's banking stocks on a large scale, followed by many foreign investors gradually shifting money out of China's stock market.
On Nov. 16, China's A-share market swooned in a spectacular sell-off with an outflow of 23.9 billion yuan ($3.8 billion). Two weeks later, the country's stocks experienced another slump in absence of strong policy headwinds.
Meanwhile, nearly all international organizations such as the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) have made negative forecasts for China's economy in recent months. Some media, including The Wall Street Journal, even warned of the possible failure of China's soft landing.
There are also signs of the rapid outflow of "hot money," or speculative overseas capital.
In October, China's outstanding funds for foreign exchange fell to 25.49 trillion yuan ($4 trillion), down 24.9 billion yuan ($3.9 billion) from a month earlier, said the country's central bank. This was the first monthly decline since 2007.
The FOFE balance (excluding trade surpluses and foreign direct investment) also showed trends of substantial outflows. Moreover, the fast drop in the foreign exchange balance resulted in a loosening of banks' deposit reserve ratios in the following months.
After that, the relay baton came to the yuan. From Nov. 30 to Dec. 6, the yuan fell to the low end of daily trading for five consecutive days (the permitted trading range is 0.5% per day).
Though the decline has long been welcomed, it was obviously not the best timing, since the expectation of yuan appreciation was reversed by external forces, said Tan Yalin, director of the China Foreign Currency and Investment Research Institute.
On the issue of where the hot money goes, Mei Xinyu, researcher with the Chinese Academy of International Trade and Economic Cooperation at the Ministry of Commerce, analyzed that the U.S. is still the best destination for capital, as the dollar's world supremacy status has not changed.
Mei said quite a few countries and regions, including Japan and Europe, are suffering from economic weakening or financial crises, and most financial institutions still choose U.S. dollars as their safe haven against uncertainty.
Guo Shiping, consultant with the National Development and Reform Commission, pointed out that short selling in China's stock, property and forex markets must be a series of planned steps on Wall Street, and China must react immediately with effective measures to ease the hard landing.
At this year's annual three-day Central Economic Work Conference, an economic blueprint for 2012 was laid out on Wednesday, in which it mentioned to "make progress while maintaining stability."
