This is how you know something desperate is going on in China's economy

pulse

February 9, 2017 7:58 PM

New year (of the rooster), same old problems with capital flight.

A man hold a rooster toy as people burn incense sticks and pray for good fortune at Yonghegong Lama Temple on the first day of the Lunar New Year of the Rooster in Beijing, China January 28, 2017.

Things are looking a bit desperate in China.

The country has been suffering from money outflows for months — something that troubles Beijing because it pulls down the value of the Chinese yuan and makes the economy harder to manage.But government measures to stem the outflows — like requiring citizens to — still aren't showing up in the numbers. In January, up to

The government is looking in every nook and cranny to block any way money can leave the country without its knowledge. That is why on Wednesday the People's Bank of China had a meeting with the country's top Bitcoin exchanges, to urge them to keep money in the country.

Let that sink in. The Chinese government went after Bitcoin.

The next day, two exchanges announced that they would no longer allow withdrawals and the cryptocurrency crashed almost 10%.

And of course, state media is on message — telling people to remain calm because the situation is not that serious, while also blaming outside forces their trouble.

One state-owned finance publication said that there is "no need to worry," because the overall fundamentals of the economy are good. It also blamed the issue of falling reserves on Tibet.

But right now reserves are important. China is using them to keep its currency, the yuan, stable as its value has been falling. The strong dollar is only been making that situation worse.

And the reserves are important in the event of an emergency. The Chinese economy is transitioning from one based on manufacturing and exports, to one more based on services industries like retail and banking. That means a lot of massive, often state-owned companies are heavily indebted and need to be downsized. There's a lot that could go wrong there that China could use reserves for.

Now, China could take control of the yuan and fix its value, but it's clear from the media that the state wants to continue on its path to liberalization, not take steps back. It also wants to keep the currency stable.

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