• BullionStar
    05/30/2016 - 21:24
    The US Gold Market is best known as the home of gold futures trading on the COMEX in New York. The COMEX has a literal monopoly on gold futures trading volumes worldwide, but very little physical...

Chinese Rush To Buy Foreign Assets As Mammoth $1 Trillion In Capital Flees Country

Tyler Durden's picture




 

“The immediate trigger for a pickup in capital outflows toward the end of the year was the People’s Bank of China’s poor communication over its shift in currency policy,” Mark Williams, chief Asia economist for Capital Economics told Bloomberg on Sunday, describing the panicked reaction to Beijing’s adoption of a trade-weighted currency index.

Over $1 trillion in capital flowed out of China in 2015 as the PBoC’s bungled move to devalue the yuan caused investors to question whether a much larger depreciation is in the cards.

According to Bloomberg’s estimates, $158.7 billion left the country last month, the second highest monthly total of 2015 after September’s $194.3 billion hemorrhage.

Things had calmed down going into December and probably would have stayed calm at least in the interim had the PBoC not introduced a new trade-weighted index for the yuan which pretty clearly indicated that China still thinks its currency is overvalued.

Indeed, assuming the dollar continues to appreciate versus global currencies, the yuan will need to fall significantly in order to keep the trade-weighted RMB stable.

In short, China is no longer willing to take it on the chin in the global currency wars. The days of Beijing sitting idly by and watching as the dollar peg kills the country’s export competitiveness are over.

As 2015 turned to 2016 we got still more volatility and indeed, fresh devaluation fears contributed mightily to the market turmoil we witnessed in January.

“China’s yuan policy has a communication issue” the IMF’s Christine Lagarde said last week.

Indeed, but one thing that has been clearly communicated to Chinese citizens is that they need to get their money out of China - and fast. Technically, Chinese are limited to $50,000 in terms of how much they can move out of the country in a given year, but as we’ve documented extensively, there are any number of ways to skirt the restrictions.

“Thanks to incremental reforms to China's capital account enacted while the yuan was still strong, it is easier than ever for Chinese companies and individuals to get money out legally,” Reuters writes, adding that Chinese “can buy property, or invest in offshore stocks, bonds or managed hedge funds; they can purchase offshore life insurance that can be used as collateral for further loans, or even buy a foreign company outright.”

And those are just the legal outlets. Chinese can also use the UnionPay end-around (although Xi has cracked down on that) or simply visit “Mr. Chen” at his “tea” kiosks. Here’s more from Reuters on Beijing’s “more holes than fingers” problem:

As a slick slide presentation runs for the well-heeled investors jammed into the banqueting hall of Shanghai's Renaissance Yangtze Hotel, an image flashes up of a grinning Chinese man pushing a wheelbarrow full of cash into Europe.

 

Another slide features a car bearing a Chinese flag preparing to drive into a pit. For wealthy Chinese, desperate to avoid further falls in a currency that has shed 6 percent against the dollar since August, the message is clear.

 

"The yuan will keep depreciating as time goes by, so we should swap the money we have in hand into tangible assets," Li Xiaodong, chairman of Canaan Capital, tells his audience, while exhorting them to pull their money out of China while the going is still good and pour it into property in Spain and Portugal.

 

Canaan Capital is one of a swarm of asset management firms leaping to profit from Beijing's latest policy headache: the swelling crowd of Chinese individuals and firms trying to get their money out of the world's second biggest economy as its growth slows to a quarter-century low.

 

One Shanghai-based investment company, Zengda, plans to guide Chinese money into mines, land and gas projects in Africa.

 

Others use trade and even tourism transactions to get money out of the country - contributing to the $200-$500 billion Chinese tourists are estimated to spend abroad annually.

 

The trend has grown so rapidly that some international banks are bolstering their wealth management divisions, encouraged by data showing money pouring out of China.

 

China's central bank and commercial banks sold a net 629 billion yuan ($95.61 billion) worth of foreign exchange in December, nearly triple the figure for the previous month.

Estimating capital flight out of China isn't an exact science and different analysts look at different proxies to determine just how leaky the ship is, so to speak. "In the wake of the small devaluation of the renminbi in August 2015, and more recently the weaker fixes in the first week of the new year, we have received a large volume of questions about capital outflows from China – how big they are, what the main sources of outflows, and how long they can continue," Goldman says, in a note out Monday.

In an effort to shed some light on where to look for accurate data on capital flight, Goldman breaks down the relevant data points on the way to determining that from August to December, $449 billion in capital left the country.

*  *  * 

From Goldman

Each month, official sources publish three different data sets that are relevant to the FX flow situation. These are not comprehensive either individually or collectively, but together shed a fair amount of light on the likely degree of FX outflow.

PBOC FX reserves (Exhibit 3). This dataset captures the FX assets held by the PBOC. It is reported based on market prices and therefore subject to valuation effects (both with respect to exchange rate and asset price movements). It does not include forwards but captures PBOC’s FX-RMB (cash) settlements with other parties; these settlements may include drawdown/repayment of PBOC’s FX entrusted loans to other entities (e.g., policy banks). It is released the earliest of the three indicators, usually on the 7th of the month.

Position for FX purchase of the whole banking system (PBOC plus banks). This dataset captures the amount of RMB supplied for FX purchase by the entire banking system (i.e., both the central bank and commercial banks), free of valuation effects. It is based on cash settlements and therefore does not include any changes in forwards. Transactions between the onshore banking system (PBOC plus onshore banks) and other parties with access to the onshore FX market would be covered in this dataset. This data is usually out around the middle of the month, after FX reserves data. Note that given possible PBOC balance sheet management (e.g., short-term transactions and agreements with banks, e.g., forward transactions), neither PBOC’s reserve data nor its position for FX purchase necessarily forms a complete picture of the FX situation.

SAFE data on banks’ FX settlement . This dataset captures banks’ FX transactions with onshore non-banks, both in the spot market and via forwards. It is transaction-based and therefore free of valuation effects. While the headline series is cash-based, which includes outright spot transactions in the reporting period and settlement of previously entered forwards, we can adjust the forward component by subtracting the settlement of forwards and adding back freshly entered forwards. After this adjustment, the SAFE data capture the underlying currency demand both in spot and forward by corporates and households—it is therefore our preferred gauge of onshore FX flows. The SAFE data is usually released in the third week of the month, after FX reserves and FX purchase data.

Based on the different characteristics of the various data sets as summarized in Exhibit 4, we can roughly deduce the underlying FX flow situation as follows.

Our preferred gauge of onshore FX flow—again, based on SAFE data but adjusted for settled/freshly-entered forward contracts--suggests a net flow of about -$449bn during August-December (and -$620bn for the full year). Note that this gauge refers only to onshore FX flow, not including any FX intervention in the offshore CNH market—hence it is likely an underestimate of the overall (onshore and offshore) outflow situation.

From an accounting perspective, though, it would be the unadjusted SAFE settlement data (including settlement of previously entered forwards between banks and non-banks, but excluding freshly- entered ones) that are more comparable with other related FX data sets (which are also cash-based). Exhibit 5 shows the changes in the various FX data sets from August through December 2015.

A main difference between SAFE settlement and banks’ position for FX purchase is that the latter captures onshore banks’ FX transactions with other institutions that also have access to onshore interbank FX market (e.g., offshore banks, some other non-bank financial institutions). Data from these two data sets were fairly close in August-December, except for October, where the SAFE FX settlement suggested continued FX outflow while the position for FX purchases pointed to FX inflow. The discrepancy, along with the meaningful increase in non-bank financial institutions’ RMB deposits during the month, suggests the possibility that some non-bank financial institutions sold a significant amount of FX for RMB in the interbank market in October.

One area where none of the official data can give much guidance on is the possible scale of CNH intervention through forwards Judging from observed market behavior, there has likely been significant volume of CNH forward intervention. To the extent this has been the case, the outstanding amount of the forward positions would be additive to the amount of outflows we calculated above and could be an additional drag on PBOC reserves going forward.

*  *  *

In other words, when you see the spread between the onshore and offshore spot suddenly compress after blowing out dramatically, China has just spent more money to combat capital flight and as regular readers might have noticed, CNH interevention isn't exactly uncommon.

And so, as money flees the country for the "safety" of Spanish real estate and African mines, watch the FX reserve headline figure and recall what Bank of Singapore chief economist Richard Jerram said earlier this month: "The burn rate has been worrying. It’s not about how long it gets to zero, its about how long it gets to about 2, which is what they need."

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Mon, 01/25/2016 - 19:29 | 7095035 Cognitive Dissonance
Cognitive Dissonance's picture

The commie capitalist rats are leaving the sinking ship.

Mon, 01/25/2016 - 19:31 | 7095043 38BWD22
38BWD22's picture

 

 

More evidence that all is not well in the BRICS.  $1 tn leaving just China, that's pretty big money.  

More than enough to overpay for our condo!

Mon, 01/25/2016 - 19:50 | 7095106 Dead Canary
Dead Canary's picture

That which does not kill you makes you stronger.

Except for bears. They'll kill you.

Mon, 01/25/2016 - 22:30 | 7095847 COSMOS
COSMOS's picture

All those dollars flooding back into the USA cant be good for inflation :(

Mon, 01/25/2016 - 20:19 | 7095210 Perimetr
Perimetr's picture

Poor China only has a couple thousand billion dollars in US Treasuries to spend.

They will be here and in Europe as everything goes on sale. 

https://www.youtube.com/watch?v=4LUumD0MwL8

Tue, 01/26/2016 - 00:57 | 7096290 Kirk2NCC1701
Kirk2NCC1701's picture

Team BRICS is getting walled in by Team Dollar. 

NWO is just around the corner.

With nary a public peep or protest.  I've seen German women demonstrate in greater numbers and more vocally than 'Merican men.

 

Mon, 01/25/2016 - 21:47 | 7095652 snodgrass
snodgrass's picture

The cannibals in Africa are rubbing their hands and saying, yum Chinese.

Mon, 01/25/2016 - 19:29 | 7095036 nmewn
nmewn's picture

One trillion dollars is like, six trillion yuan right?

Houston, we have a problem! ;-)

Mon, 01/25/2016 - 19:34 | 7095054 Cognitive Dissonance
Cognitive Dissonance's picture

"Go ahead and eat spend them, we'll make print more." - China's former Lay's potato chip spokesperson recently promoted to PBOC spokesperson.

Mon, 01/25/2016 - 19:42 | 7095077 nmewn
nmewn's picture

Wi Lei Lo? ;-)

Mon, 01/25/2016 - 19:38 | 7095065 CheapBastard
CheapBastard's picture

Mainlanders now own half of Cali (other half owned by Mexicans and Silicon Valley app developers), they own half of Vancouver (other half owned by Indians+Pakis) and they own quite a bit of Seattle.

 

If the US Treasury continues to examine "Source of Funds" it could get embarrassing for them. On the other hand, if tensions heat up with the PRC, DC can easily confiscate all that juicy property for a very sweet source of money.

 

Pretty sweet.

Mon, 01/25/2016 - 19:47 | 7095094 nmewn
nmewn's picture

Now see, this would be a great time to test this whole national sovereignty notion before some great, august, well informed body of intellectuals...say, like the Hague or the UN! ;-)

Mon, 01/25/2016 - 20:54 | 7095386 pitz
pitz's picture

Foreign investment in Vancouver is said to be less than 5% of the overall property stock.  The "Chinese" people you see in Vancouver, really Canadians, are almost entirely locals, with huge-ass mortgages.

Mon, 01/25/2016 - 19:33 | 7095050 Seasmoke
Seasmoke's picture

Just Buy Gold, Chinese folks !!!!!!

Mon, 01/25/2016 - 20:09 | 7095169 847328_3527
847328_3527's picture

I know a few Hong Kongers and that's exactly what they are doing. One told me they can buy physical or buy gold in Bank of China and they hold it for you. Seems easier then risking moving all that money around and having it possibly embezzled, stolen or confiscated by a hostile foreign gubmint.

Mon, 01/25/2016 - 20:12 | 7095174 Anopheles
Anopheles's picture

And do what with it?  Bury it in the back yard?  

The intent is to get money out of the country.  

 

Mon, 01/25/2016 - 20:27 | 7095256 pitz
pitz's picture

That's assuming that there is actually 'money'.  But deflation destroys money.  So there isn't anything to actually ship out of the country. 

Mon, 01/25/2016 - 19:37 | 7095063 DC Beastie Boy
DC Beastie Boy's picture

They've been buying foreign assets for mileniums

Mon, 01/25/2016 - 19:40 | 7095071 falak pema
falak pema's picture

when capitalism shows its true entrepreneurial face; slit eyes and big smiles.

Dubya dida great job as did Billy boy before him. Marco Polo's two yankee sons.

Now the illegal silk route soon to be followed by the official one.

"Nutting dat yankee didna wanta teach me but I cut n pasted behind his back, that  I now show him like goodfellow :  I can try to outreach him now that I've Foxconned and Ali Baba'ed him real good.

We are not Japan, we lost no war; we won ping pong game!

Mon, 01/25/2016 - 20:00 | 7095137 nmewn
nmewn's picture

Clearly the yankee running dog capitalists fault for building all those damned ghost cities!...lmao!!!

Mon, 01/25/2016 - 22:21 | 7095797 38BWD22
38BWD22's picture

 

 

No, nmewn, you know better than that.

It's all George Bush's fault!

Tue, 01/26/2016 - 07:11 | 7096641 falak pema
falak pema's picture

Its only the economy stupid and Capitalism's race to bottom.

Greed knows no frontiers thats for sure!

Mon, 01/25/2016 - 19:52 | 7095114 starman
starman's picture

And they wisely invested it in US and Canadian  real estate!  

Hahaha! 

Mon, 01/25/2016 - 19:57 | 7095128 Tinky
Tinky's picture

You laugh, but -50% will be a helluva lot better than losing it all.

Mon, 01/25/2016 - 21:36 | 7095599 Clowns on Acid
Clowns on Acid's picture

Indeed ... cross border insurance is expensive.

Mon, 01/25/2016 - 20:05 | 7095152 g speed
g speed's picture

during a bubble----hahahahahah

Tue, 01/26/2016 - 03:01 | 7096434 chairman mao
chairman mao's picture

they created the bubble themselves

Mon, 01/25/2016 - 19:59 | 7095136 zerotohero
zerotohero's picture

My F'n brother in law put his house up for sale in Vancouver 2 weeks ago - sold in 2 days and the son of a bitch got....... Drum roll.......$400,000 Bucks over asking - yup they were Chinese. First bid was 50k above and it just took off

Mon, 01/25/2016 - 20:14 | 7095182 starman
starman's picture

Sold mine 375 over to a French man!  Go figure. 

Mon, 01/25/2016 - 21:24 | 7095537 Hugh_Jass
Hugh_Jass's picture

He should have made those fools pay him in gold bullion!

Definitely not CAD.

Good luck!

Mon, 01/25/2016 - 20:02 | 7095142 Omega_Man
Omega_Man's picture

why aren't they buying silver?

Mon, 01/25/2016 - 20:09 | 7095168 mtndds
mtndds's picture

The Federal Reserve needs to fuck up the chinese that are pouring their money into Real Estate and allow the housing prices to crash in the U.S.

Mon, 01/25/2016 - 20:16 | 7095195 DaNuts
DaNuts's picture

More empty appartments in London. That is where the safe money is being parked at the moment. Not just the Chinese, Ruskies too. 

Mon, 01/25/2016 - 20:20 | 7095207 pitz
pitz's picture

You can't park money in an appartment, or even in RE.  As someone must have been the seller.  So where are the rich sellers of RE to the Chinese?  Hint:  they don't exist, so don't bother trying to find them, because its not 'Chinese' money going into overseas RE either.   Money is being destroyed in China, but that's what deflation does -- destroys credit, and money is credit. 

Mon, 01/25/2016 - 23:07 | 7096002 sleigher
Mon, 01/25/2016 - 23:27 | 7096063 pitz
pitz's picture

Okay fair enough.  And we know the Chinese are importing as much of that as they can.  Not exporting.  But the fiat money system in China is clearly in severe contraction, leaving nothing really available with which to go on a foreign shopping spree as alleged.  Chinese factory owners, Chinese elites, are in the fight of their lives to maintain their assets in amidst the deflation. 

Tue, 01/26/2016 - 02:30 | 7096412 farmerunder
farmerunder's picture

Plenty grabbing the cash here in Aust from both overseas buyers and (thanks to leverage of FRB) our own domestic buyers. IF, they have owned the properties before the wheels fell off the bus and credit avalanche got going, they have banked some serious gains. Problem is, if its in the bank, u might as well tear it up if the bail in is coming.

Mon, 01/25/2016 - 21:03 | 7095430 InnVestuhrr
InnVestuhrr's picture

I can hear the tidal wave of exit from the USD into the yuan, just as the priests and followers of the shiny-shit cult insisted, because the chinks buy tons of shiny-shit, and therefore they must be more stable and safer than the badly abused USD, because shiny-shit is the magic stuff that rules the universe, and everything else is garbage,

yes, shiny-shit cultists, I am a believer, I can even hear the tsunami away from the doomed USD into the supreme yuan in the land of vast shiny-shit piles, HALELULLYA !!! I AM A BELIEVER !!!!

... oh, sorry, that deafening woosh sound is the holders of the doomed yuan fleeing to the safety of the USD.

Mon, 01/25/2016 - 22:00 | 7095711 Kina
Kina's picture

More regulations too easy...to take what has been sent overseas.

A possible Law - Chinese persons wealth has to be retained in China. Anything held outside over a certain amount has to be decalared and after 'this' particular date if not returned to China, is forfeited to the State and is treasonous act on the people of China from whom you made your wealth. Forfeit of said asset and punishment as well.  like a fine and imprisonment.

Trying to track it all down impossible, but they only have to catch a few.

Mon, 01/25/2016 - 22:02 | 7095722 Kina
Kina's picture

Always dangerous to be physically seperated from your wealth.

Tue, 01/26/2016 - 03:16 | 7096447 dag
dag's picture

O/T

PBOC prepares for Lunar New Year by flooding system with cash

The People’s Bank of China is preparing for the Lunar New Year holiday next month by flooding the financial system with cash to make sure the ATM machines don’t run dry.

The PBOC injected 1.5 trillion yuan into the banking system this month, reports WSJ, with more expected before this year’s week-long holiday, which begins Feb. 7.

http://atimes.com/2016/01/pboc-prepares-for-lunar-new-year-by-flooding-s...

 

Tue, 01/26/2016 - 03:33 | 7096471 mosfet
mosfet's picture

Shanghai Composite just closed down 6.42% and -22.30% YTD.  Bull to Bear market in only 17 days of trading must be some kind of record?

http://money.cnn.com/data/world_markets/se_composite/

Tue, 01/26/2016 - 10:42 | 7097193 Johnny_is_alrea...
Johnny_is_already_taken's picture

"...and pour it into property in Spain and Portugal."

 

Yes but I am a member of the Far Right party of one of those countries and I ASSURE you those chineese assets are going to be confiscated.

My country is not for sale to foreigners ! 

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