As I have said repeatedly, a financial crisis is immiminent in China. Central planning (unless of the U.S. Fed variety I say with a little sarcasm) cannot work as a doctrine. Investors and institutions with shiny new deposits in Yuan will have to deal with risk a magnitude greater than "sovereign risk".
However, I must admit that this problem is as old as international investment, and with the present era of fiat money and its ability to create and destroy money at an unprecedented rate, I think we will find that global capital flight will be exacerbated. "Its different this time" should read to any investor as "I have 6 months to find buyers of my securities inventory at favorable prices before a crash".
The below illustrates some of what I said above - do you really want deposits with Chinese banks and their centralized monetary system?
China Freezes Lending to Curb Investing Frenzy
By JAMES T. AREDDY
November 19, 2007;PageA1
SHANGHAI -- Chinese authorities are slamming the brakes on bank lending, in
their latest attempt to curb the runaway investment threatening to overheat
what is soon to be the world's third-largest economy.
In recent weeks, regulators have quietly ordered China's commercial banks to
freeze lending through the end of the year, according to bankers in several
cities. The bankers say that to comply, they are canceling loans and credit
lines with businesses and individuals.
A China Banking Regulatory Commission official here confirmed that local and
Chinese subsidiaries of foreign banks have been asked to ensure that loans
at the end of the year don't exceed the total outstanding on Oct. 31.