[Abstract] China's total economic output is relatively large. Foreign funds enter China's capital market and must consider whether they can change the price trend of China's capital market. Vietnam is an emerging market economy country. The capital market absorbs a large amount o

[Editor's Note] This article was authorized by Professor Qiao Xinsheng, Senior Researcher of Kunlun Ce Research Institute, to publish the headline account "Kunlun Ce Research Institute" for research reference.

[Abstract] China's total economic output is relatively large. Foreign funds enter the Chinese capital market and must consider whether they can change the price trend of China's capital market. Vietnam is different. Vietnam is an emerging market economy country. The capital market absorbs a large amount of external funds. Once the funds are withdrawn, it may cause bloody storms.

Vietnam stock market suddenly plummeted on July 12, 2021. The index-oriented Ho Chi Minh Index fell by nearly 6%, and financial stocks fell by nearly 10%. Some scholars worry that a new financial crisis may break out in Asia.

In the 1990s, the Asian financial crisis brought great harm to the people of Asian countries. The economies of some Southeast Asian countries have been regressing for more than ten years. At that time, Malaysian Prime Minister Mahathir once accused US Federal Reserve Chairman Greenspan , believing that Greenspan condoned hedge fund to rush into the financial markets of Southeast Asian countries, bringing a catastrophe to the economy of Southeast Asian countries.

Greenspan believes that the Asian financial crisis has broken out and the responsibility lies with Southeast Asian countries. It is precisely because of the implementation of expansionary economic policies and trying to raise more funds through the financial market and accelerate the pace of economic development that international hot money has taken advantage of the situation. The governments of Southeast Asian countries should be responsible for the financial crisis.

The financial crisis that happened in Vietnam is so similar to the financial crisis in Southeast Asian countries at that time. A large amount of funds poured into the Vietnamese capital market, and Vietnamese stock prices continued to rise. However, just when investors from all sides believed that Vietnam's economy was the only one and the risk of investing in Vietnam was relatively small, some investors quietly withdrew their funds, resulting in a continuous surge in the Vietnam stock market.

Whether this is a premeditated short selling behavior or the inevitable result of Vietnam's economic overheating is unknown. However, from the perspective of the laws of capital market development, the two are the same thing.

During the major epidemic, Vietnam's economy continued to grow, and except for China, Vietnam became a country with economic growth. It is precisely because of the relatively stable economy in Vietnam, especially because the Vietnamese government has taken practical and effective measures to control the spread of the epidemic, which has caused many investors to flock to it, and the Vietnamese economy has shown a rapid growth momentum.

In the first half of 2021, Vietnam's economic development was very eye-catching. Vietnam's capital market performance was beyond people's expectations. The Vietnamese Ho Chi Minh Index once rose by 40%, and Vietnam's financial market showed prosperity.

The price of Vietnam's stock market fell this time. Some scholars believe that it is mainly due to the following reasons: First, Vietnam has shown a trend of virus spreading. Due to the major rebound of the epidemic, Vietnam's economic development prospects are worrying; second, Vietnam's economic development momentum was too strong in the first half of the year, and a large amount of funds entered the Vietnamese financial market. Vietnam's economic strength was not enough to support so much capital, and the outflow of funds would inevitably lead to a decline in the price of the Vietnamese stock market; third, the US Federal Reserve released a rumor, tightening the monetary policy of to solve the liquidity problem, and a large amount of funds returned to the United States, resulting in a decrease in funds in the Vietnamese stock market and a decline in stock prices.

Frankly speaking, these views all make sense. But the question is, why did a large amount of funds enter Vietnam, resulting in a brief prosperity in Vietnam's financial market?

From the development trend of the international financial market, Wall Street investment bank funds are like wolves looking for prey, always looking for speculative markets. As the world's economic scale second only to the United States, China will of course become the target of investment in the United States Wall Street. However, judging from the "northward" capital flow, although Wall Street Investment Banks have tried to short the Chinese capital market through various channels, including through some online platform companies, to gain huge benefits from it.However, due to the relatively large size of China's capital market, it is impossible for a few funds to cause storms. China's financial regulatory authorities closely monitor the circulation of international hot money and take all possible measures to crack down on the financing behavior of online platform companies, making it difficult for the funds of Wall Street investment banks in the United States to make a difference in the Chinese financial market.

is different in Vietnam. Vietnam is an emerging market economy country with relatively weak economic strength and limited capital market capacity. As long as a certain amount of capital is invested, you can make trouble in the Vietnamese market.

In fact, the Vietnamese government has seen the importance of economic development and attracted foreign capital through various means. However, it has ignored the liquidity of foreign capital and has not taken practical and effective measures to impose necessary restrictive regulations on foreign capital flows. As a result, a large amount of funds have entered Vietnam's capital market, thus causing Vietnam's stock prices to continue to rise.

The reason why foreign funds entered the Vietnam stock market is that Vietnam is a country with rapid economic development and Vietnam has not been affected by the major epidemic, so it has become a safe haven for investors. A large amount of hot money entered Vietnam's capital market, bringing Vietnam a lot of capital and prosperity. After the price of Vietnam's capital market rose, international hedge funds quietly withdrew and used the short selling mechanism to make huge profits in the futures market and options market. The Vietnamese capital market is unfortunately the target of the impact of Wall Street investment banks in the United States.

So far, problems in Vietnam's capital market have not affected Vietnam's real economy. Many factories investing in Vietnam are still starting production normally, and Vietnam's processing economy is still booming.

For a country like Vietnam like transition, developing processing industry is a necessary measure to achieve industrialization. Establishing an industrial park can not only attract foreign capital, but also train a large number of technical workers, laying a solid foundation for Vietnam's comprehensive industrialization.

For foreign companies that invest in Vietnam, they rarely use Vietnam's capital market to raise funds. On the one hand, this is because Vietnam's capital market capacity is limited and has a certain degree of closedness. On the other hand, it is because foreign companies that invest in Vietnam, except for a few multinational companies, most of them belong to small and medium-sized enterprises in Asia, and they do not have the ability or experience to obtain more profits from the capital market. The impact of Vietnam's capital market this time may have a negative impact on investor confidence. However, overall, due to the continued development of Vietnam's processing industry, Vietnam will not experience a financial crisis similar to those of countries such as , Malaysia, and in the 1990s.

The reason why the Asian financial crisis in the 1990s did not have a direct impact on China was because China's financial market was relatively closed at that time, and foreign capital entry was relatively difficult, and capital flows under capital accounts were strictly restricted. But now, China has fully opened its financial market. If a scene like Vietnam appears, China's economy will inevitably be seriously affected.

However, as we analyzed, China's economy is relatively large, and China's capital market has sufficient ability to resist external shocks. However, China must be prepared for danger in times of peace.

China must attach great importance to the reliability of monetary policy . Some Chinese scholars believe that monetary policy is divided into three categories: neutral monetary policy, prudent monetary policy and loose monetary policy. This statement may make some sense. However, judging from the implementation of monetary policies in various countries, there is no consensus in the academic community on what is a prudent monetary policy and a loose monetary policy. The author always believes that monetary policy must be neutral, that is, a national monetary policy of must be consistent with the national economic development level. People's Bank of China decided to lower interest rates and release currency because China's economic growth rate was relatively fast in the first half of 2021, and the growth of wealth required corresponding monetary support. In other words, Chinese currency is based on China's wealth, and the growth of wealth requires the growth of currency. However, the relationship between the two is very complicated.If we only see that wealth growth and economic development need to increase the issuance of currency, while ignoring the speed of currency circulation and the flow of currency, then monetary policy may lead to severe inflation in China.

The reason why the central government did not easily use monetary policy to stimulate economic growth is that monetary policy has very obvious side effects on stimulating economic development. If the issuance of currency increases, it will inevitably cause inflation; if the currency circulation speed accelerates or the flow of currency changes, it will inevitably lead to chaos in the entire country's economy. The central government has always adhered to the principle of prudence on monetary policy issues.

Some scholars, including the author, advocate that China should always adhere to the principle of monetary neutrality. Even when economic development encounters difficulties, do not learn from some developed Western market economies and make full use of monetary policies to stimulate economic growth, because doing so may lead to endless troubles.

China should implement a prudent monetary policy. When necessary, on the basis of controlling the total amount of currency issuance, appropriately change the circulation speed and the flow of currency, so that more money can flow out of the capital market and enter the real economy, and solve the financial difficulties of enterprises, especially small and medium-sized enterprises. In fact, my country's monetary policy is constantly adjusted according to this principle.

It is precisely because of adhering to the principle of currency neutrality that China has faced the problem of weak economic growth many times in the process of economic development, but there has never been a large-scale financial crisis. The essence of inflation is actually the redistribution of wealth and a cruel plunder of small and medium-sized enterprises and the working class. Therefore, no matter what, it is impossible to rely on inflation to maintain economic growth by increasing the issuance of currency.

Some scholars believe that China is currently facing inflationary pressure, but this pressure mainly comes from the outside. Due to China's strong exports and earning a large amount of foreign exchange, it is necessary to release a large amount of RMB in the Chinese market. This is the so-called "external input inflation." Frankly speaking, if a country's economy is not regarded as a whole system, only considering its own market demand, and not considering the currency demand brought by exports, then there will inevitably be more and more external input inflation. Monetary policy formulation must take into account both the demand of China’s domestic market and the needs of foreign trade development. Only by taking into account the overall planning and coordination can we ensure that our monetary policy will not face inflationary pressure due to the increase in foreign exports.

Foreign Trade Law of the People's Republic of China clearly stipulates that China implements a balanced trade policy. In other words, China has completely abandoned mercantilism and did not pursue the increase in foreign exchange reserves as the purpose of trade. China should attach great importance to the impact of external imported inflation on China's economy, but it cannot exaggerate the negative effects of external imported inflation. The most urgent task is to ensure that China's capital market is highly transparent, deeply understand the essence of the capital market in Western countries, and take practical and effective measures to increase the transparency of listed companies. Because only in this way can our capital market not become the source of financial crimes and ensure that our capital market will not become the birthplace of inflation.

Developing China's capital market, we must attach great importance to the externalities of the capital market. The core of the capital market is that capital determines everything. China develops the capital market with the goal of raising funds for Chinese companies and discovering capital prices through normal transactions. If the capital market is used too much and attempts to create a "doubling effect" with the help of the capital market, it will not only trigger a financial crisis, but also shake the foundation of socialism. From this perspective, developing China's capital market must always be vigilant and must not blindly imitate others, so that the Chinese capital market can become the source of external hot money to capture land and create financial crisis.

(The author is a professor of , , Central South University of Finance and Economics, and a senior researcher at Kunlun Ce Research Institute; source: Kunlun Ce.com [author authorization] , converted from "Qiao Xinsheng")