​This is brilliant, China capital inflows have collapsed, China has deeply reduced reserves, and there is no light at the end of the tunnel

China has a terrible new problem

Are we ready to accept that China is entering a period of serious longterm decline, with possible collapse?

​Read more after the jump.

"The problem now is that inflows into China are collapsing. Probably down almost 40% this year. That is placing maybe even more pressure on the RMB [yuan] than the outflows. To run a fixed exchange rate you have to balance those things."

Right, balance!? This is one thing China has none of right now.

"China devalued its currency in August. Shortly before the devaluation, Goldman Sachs noted that "capital outflows have become very sizable and now eclipse anything we've seen in the recent past."

Since the devaluation, money has left the country in fits and starts. In September and October it was pouring out, but then outflows moderated. As the yuan started falling against the dollar again at the beginning of this year, the deluge started again, then moderated again.

Because of this, the government has become extra disciplined about capital controls — as disciplined as a government can be when people who want to move money seem to have boundless creativity.

But without inflows, restricting outflows won't be enough."

Right about now, the sane are noticing the big flashing red light, with the loud klaxon blaring in the background. 

"Either way, Balding said: "Unless [investors] flood back in H2, you will still end the year down significantly. I don't know anyone that is rushing to put money into China. Chinese and foreign investors are saying the same thing: don't buy China right now.'"

Apparently there is still an economic pulse, faint, but alive. China seems bound and determined to land this economy with the hardest possible landing.

​We are expecting a serious crackup requiring quite a bit of time before China is ready to resume ordinary operations. If unlucky, this could trigger the massive pent-up unrest in the country. Who knows where that would go. The Red Army is about the least prepared large army on Earth. They are also undisciplined. The people are inflamed, unrest lies under the surface in many areas. A hard landing would magnify these problems. China is more-or-less a powder keg. 

We await a spark.