CHINA: CAPITAL FLIGHT EXPLODING TOWARDS THE NEW $50,000 PER CAPITAL QUOTA

On Sunday January 1 2017, a ‘new round’ of $50,000 per capita permissions to convert yuan into foreign currencies came into effect. A lot of Chinese people took advantage of that -- fast.

Because there is a lot of talk and a lot of rumors about an impending devaluation. That’s not so strange given the continuing news about increasing outflows and shrinking foreign reserves. And those $50,000 is just the permitted amount. Beyond that, things like real estate purchases abroad, and ‘insurance policies’ bought in Hong Kong, add a lot to the total.

What makes this interesting is that if only 1% of the Chinese population -close to 1.4 billion people- would want to make use of these conversion quota, and most of them would clamor for US dollars, certainly since its post-election rise, if just 1% did that, 14 million times $50,000, or $700 billion, would potentially be converted from yuan to USD. That’s almost 20% of the foreign reserves China has left ($3.12 trillion in October, from $4 trillion in June 2014).

In other words, a blood letting.

And of course this is painting with a broad stroke, and it’s hypothetical, but it’s not completely nuts either: it’s just 1% of the people. Make it 2%, and why not, and you’re talking close to 40% of foreign reserves. This means that the devaluation rumors should not be taken too lightly. If things go only a little against Beijing, devaluation may become inevitable soon.

In that regard, a remarkable change seems to be that

  • While China’s always been intent on keeping foreign investment out, now all of a sudden they announce they’re going to sharply reduce restrictions on foreign investment access in 2017.
  • While at the same time restricting mergers and acquisitions by Chinese corporations abroad, in an attempt to keep -more- money from flowing out.

Something that has been as unsuccessful as so many other pledges.

The yuan has declined 6.6% in value in 2016 (and 15% since mid-2014), and that’s probably as bad as it gets before some people start calling it an outright devaluation.

 

RESEARCH:

Chinese capital flight is back | FT Alphaville

https://ftalphaville.ft.com/2017/01/19/2182669/chinese-capital-flight-is-back/

Jan 18, 2017 - Ever since the People's Bank of China began reducing its enormous pile of foreign exchange reserves and letting the yuan depreciate against ...

China trade flows threatened by capital flight battle - Financial Times

https://www.ft.com/content/51ebddb0-d224-11e6-b06b-680c49b4b4c0

Jan 23, 2017 - China's battle against capital flight is threatening the country's trade flows, with recent restrictions on the use of basic tools for cross-border ...

Chinese capital flight is becoming dangerous, banks warn | afr.com

www.afr.com/.../chinese-capital-flight-is-becoming-dangerous-banks-warn-20170206...

Feb 6, 2017 - China's reserves are not as large as they look given the scale of the financial pressures and the structure of the economy.

China's Capital Flight - Bloomberg

https://www.bloomberg.com/news/articles/2016-01-14/china-s-capital-flight

Jan 14, 2016 - It's worth taking a close look at what “capital flight” really means for China. Capital flows out of the country aren't necessarily bad; they're simply ...

Asia's top banks warn that Chinese capital flight is becoming dangerous

www.telegraph.co.uk › Business

Feb 5, 2017 - China's central bank is running out of ways to stem capital flight and faces a near impossible task trying to manage the fall-out from extreme ...

China capital flight flashes warning as authorities forced to prick ...

www.telegraph.co.uk › Business

Oct 26, 2016 - China China's property market went mad after the authorities poured fuel on the flames. Beijing is now slamming on the brakes. Capital ...

China Spotlight: Capital Flight Intensifies, US Treasury Reserves ...

https://mishtalk.com/.../china-capital-flight-intensifies-us-treasury-reserves-plunge-cap...

Dec 7, 2016 - China did not sell US treasuries because it wants to get rid of them. Rather, China'sreserves plunged because of capital flight. China is doing ...

Why China Lost About $3.8 Trillion To Capital Flight In The Last Decade

www.forbes.com/sites/insideasia/2017/02/22/china-capital-flight-migration/

Feb 22, 2017 - BY FRANK R. GUNTER - To reduce capital flight, the Chinese government as developed a complex system of capital controls. But these ...