Working Paper: NBER ID: w29633
Authors: Xuepeng Liu; Heiwai Tang; Zhi Wang; Shangjin Wei
Abstract: With capital controls, the standard financial market transactions needed for currency carry trade are hard to implement. Using detailed trade data reported by both the mainland Chinese and Hong Kong’s governments, we present evidence that indirect currency carry trade likely takes place via round-trip reimports. We also show that greater state control in terms of more state-owned firms does not reduce such “carry trade by trucks.”
Keywords: currency carry trade; capital controls; reimports; China; state-owned enterprises
JEL Codes: F14; F3; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| state-owned enterprises (SOEs) (L32) | currency carry trade (F31) |
| reimporting products (F10) | mimic currency carry trade (F31) |
| low-interest loans (H81) | higher-yielding financial products (G19) |
| high value-to-weight ratio products (D46) | carry trade returns (G15) |
| realized returns from carry trade (G15) | nominal annualized terms (G12) |
| roundtrip reimports (F10) | currency carry trade (F31) |
| currency carry trade (F31) | reimport values (F10) |