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A Desperate China Caps Card Withdrawals In Frantic Attempt To Stem Outflows
Earlier this month we documented Beijing’s mad dash to tighten up capital controls in China in order to stem outflows in the wake of the PBoC’s move to transition towards a new FX regime.
Put simply, expectations that a (much) deeper devaluation is on the horizon coupled with China’s efforts to manage the fallout from those expectations by liquidating hundreds of billions in FX reserves to support the onshore and offshore spots have understandably put authorities on edge, leading directly to efforts to stop the bleeding.
As we put it a few weeks ago, “while China may succeed in maintaining an orderly pace of FX depreciation, if the local population is concerned it will lose substantial purchasing power in the coming months and years, it will accelerate the capital flight from the country, forcing even greater reserve liquidation as the government finds itself defending not only the capital but also the current account, not to mention the sheer capital flight panic resulting from the crashing stock market.”
Of course one of the more straightforward ways of circumventing China’s official capital controls has been by “abusing” UnionPay cards. Roughly speaking, the process works like this (via Reuters):
Growing numbers of Chinese are using the country's state-backed bankcards to illegally spirit billions of dollars abroad, a Reuters examination has found.
This underground money is flowing across the border into the gambling hub of Macau, a former Portuguese colony that like Hong Kong is an autonomous region of China. And the conduit for the cash is the Chinese government-supported payment card network, China UnionPay.
In a warren of gritty streets around Macau's ritzy casino resorts, hundreds of neon-lit jewellery, watch and pawn shops are doing a brisk business giving mainland Chinese customers cash by allowing them to use UnionPay cards to make fake purchases - a way of evading China's strict currency-export controls.
On a recent day at the Choi Seng Jewellery and Watches company, a middle-aged woman strode to the counter past dusty shelves of watches. She handed the clerk her UnionPay card and received HK$300,000 ($50,000) in cash. She signed a credit card receipt describing the transaction as a "general sale", stuffed the cash into her handbag and strolled over to the Ponte 16 casino next door.
The withdrawal far exceeded the daily limit of 20,000 yuan, or $3,200, in cash that individual Chinese can legally move out of the mainland. "Don't worry," said a store clerk when asked about the legality of the transaction. "Everyone does this."
Yes, “everyone does this,” but not for long because now that the yuan deval debacle has served to accelerate the capital outflows, Beijing is set to double down on efforts to curb the degree to which capital controls are openly subverted and as WSJ reports, China is has now “put a new annual cap on overseas cash withdrawals using UnionPay.” Here’s more:
China has capped the amount of money Chinese holders of bank and credit cards can withdraw outside the country, in its latest effort to discourage people from moving badly needed capital offshore.
China’s foreign-exchange regulator put a new annual cap on overseas cash withdrawals using China UnionPay Co. bank cards, a UnionPay official said on Tuesday. Under the new rules, UnionPay cardholders can withdraw up to 50,000 yuan ($7,854) overseas during the last three months of this year, and the amount will be capped at 100,000 yuan for all of next year, the official said.
State-run UnionPay has a virtual monopoly on processing card transactions in China, meaning the limits extend to nearly all Chinese bank- and credit-card holders. It wasn’t clear when the new cap was issued.
The new cap is in addition to an existing 10,000 yuan daily withdrawal limit, part of China’s curbs on how much money can flow across its borders.
The move by China’s State Administration of Foreign Exchange is the latest by Beijing to scrutinize capital outflows.
The People’s Bank of China, the country’s central bank, said earlier this month that its foreign-exchange reserves fell by $93.9 billion, the biggest monthly drop ever, after it surprised the market on Aug. 11 with its decision to devalue the yuan by around 2%.
Will this help to reverse the momentum? No, probably not.
The problem here - and this is something that quite a few people are still struggling to understand - is that Beijing has telegraphed a much larger devaluation, which means the pressure on the yuan will likely continue.
So yes, as difficult as this is to come to terms with, this is a scenario where China played the deval card and is looking to ever-so-gradually move from a 3% deval to an export-boosting double-digit deval, but in the meantime, Beijing must manage the pace, which means supporting the yuan via direct interventions. The trick, however, is going to be pulling this off without triggering a disastrous outflow of capital, and we'll leave it to readers to determine if the measures outlined above are likely to do anything meaningful to stem the flow.
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Cash-card withdrawals?
All Fiat currencies eventually revert to their intrinsic value of zero.
So,,,that's this year, or, if we're lucky, next year ?
:)
It's so simple.
1. You buy bitcoin on okcoin or btcchina.
2. You transfer your bitcoin to non-chinese exchange.
3. You sell your bitcoin and cash out in any currency your foreign bank accepts.
The best thing yet? You don't even have to like bitcoin :-)
Todays article is real lame: quoting a Reuters article from March 12, 2014:
http://uk.reuters.com/article/2014/03/12/uk-china-unionpay-special-repor...
Good catch, makes this article suspect.
Indeed, and it looks like every single one of them in wide circulation is about to get the hook.
Dollar, Yuan, Ruble, Euro, you name it.
War on Cash opens up a new Eastern Front: China
The Chinese are trying to control capital flight, not usage of cash.
Wait a little longer, that call will soon come. :D:D:D
Yep, buy real estate on the west coast and ride the Chinese exodus wave...
China chooses to use the stick instead of the carrot to attract its people.
Backward choice. Soon the draconian re-education camps might re-open.
Chi-Com Soup Nazi: "No capital control for you!" ;-)
Well, that got a pretty good chuckle.
Thanks, the wit is classic.
2015.75
It's all falling into place. And falling apart at the seams.
Suggested new ad campaigns...
UnionPay -- it's everywhere EXCEPT where you want to be.
UnionPay -- what's in your wallet (stays in your wallet-- if you know what's good for you).
UnonPay -- don't leave home without something else.
And finally, Ticket to San Francisco 20,000. Bribe to Exit Visa Examiner 50,000. Staying home and brushing up your English by watching American TV reruns because your card won't work, Priceless.
funny shit :D:D
Time for Bitcoin - https://blog.bitmex.com/hello-bitcoin-china-begins-actually-enforcing-ca...
Bitcoin in China is illegal.
How much gold would 10,000 yuan buy?
How much of this is the natural result of China's own Potemkin economy, and how much is above or below board machinations by the U.S./West.
I still think China benefits from having manufacturing which helps it longer term. What's going to help the U.S.? Newer ways to securitize debt? What's left?
Left unsaid here is how many US Treasuries China will sell, in a futile effort to compensate for unstoppable capital flight.
Great minds and all that.
:)))
The most frightening part of this tale of woe is the FX reserves that are spoken of are none other than our very own T bonds.
They have trillions of US debt.
Take that fact to it's end conclusion.
don't worry, plenty of buyers for UST, it's all good.
… and after all the good people have stocked up on Treasurys to safeguard their nest eggs, US rates will skyrocket and bond prices will get destroyed!
(Gee, I’m gettin’ smart… Maybe I should start a hedge fund!)
Tyler, if physical cash were illegal and NIRP introduced, would that not also imply the criminalization of all types of precious metal bullion holdings by private
individuals and capital flight controls? If you didn't have the latter people with large cash holdings could simply transfer their funds to a foreign country, convert it to
bullion and vault it if they didn't want to chose the alternative real asset route of commerical or residential property or land. (The latter wouldn't protect your
loss of purchasing power if, for example, you were a US citizen and purchase US-located land or property prior to the $USD losing reserve currency status.)
Also, if Chinese retail are worried about Yuan devaluation, why not just buy bullion? Chinese multi-millionaires can just hire private jets and fly their money
out of the country.
My neighbor has friends over there and he said that's what alot of people are doing in HK and Mainland; namely, buying either physical gold or opening a gold bank account of some sort with a major bank.
That makes more sense. Then you can sit comfortably while the currency does what it does.
too funny. this isn't the 1990 yen raid that blindsided japan or the 1997 baht raid that was just too easy peasy or the 1999 ruble raid that was just beating a dead horse. both russia and china have spent the last 15 years building up a defense against the parasite economic hitmen. putin didn't make his move on ukraine until he knew he had the guns to carry out his bluff knowing that syria would also be a problem for russia. the key has been the duet arranged with china. the usa is stunned. no nation has moved so directly against the usa since pearl harbor and now more than half the world population and land area support china/russia.
what an absolute bunch of dumbfucks. not only has china/russia checkmated the usa/euro economically but also geopolitically.
what i laugh at is merkel's head exploding and anime cartoons of japanese men begging for mercy from dragon lady chinese and big blond russian women as they ........
throw in L.America and Africa, they're not keen about the Chinese but at least they don't lecture you on how to run your country and drone bomb you if you disagree
Article doesn't make sense. Lady in Macau conducted a transaction called a purchase. Title of article is about limiting cash withdrawals. Two. ..different...things...
You should note that she only got the cash, not the supposedly purchased merchandise.
Macau made a mint by getting money out of china. People would go there, take a bunch of money out with their Union Pay account, then "lose" at the tables, where the casino would then deposit the money into a foreign bank of the bettor's choosing, minus their fee of course. It's how the wealthy (and corrupt) got their money overseas to then hide, circumventing the previous capital controls
What the PBOC accomplished with the selling of treasuries was a temporary steepening of the yield curve, which reflected directly in the gold price. They diversified into gold with U.S. currency while the gold price was at a low.
If it is, in fact China that holds the treasuries, and not Wall St.