Full Summary Of Chinese Actions To Prevent An All-Out Economic Collapse

Tyler Durden's picture

Last summer, China unleashed an unprecedented array of measures - up to and including the arrest of "malicious short sellers" and prominent hedge fund mangers - to prevent its stock market bubble from bursting. It failed. A few months later, the chaos has spilled over from the relative containment of the capital markets and has engulfed not only the country's FX reserves, and capital account, but also the entire economy.

As a result, China’s government has gone all in, and as Bloomberg reports, is stepping up efforts to ward off a potential financial crisis, warning bank executives that their jobs are on the line unless they control risks and putting restrictions on an increasingly popular way of evading capital controls. These moves come in response to China's slowest economic growth in a quarter century fueled concerns that bad debts will cripple the banking system and a catalyst for why virtually every hedge fund is now short the Yuan.

As Bloomberg puts it politely, these actions "add to evidence that President Xi Jinping’s government is moving with increased urgency to rein in financial-system risks."

We disagree: these are the same panicked, "after the fact" reactions that only a government on the verge of losing control will engage in. As for their ultimate success, just compare the current price of the Shanghai Composite and its recent all time highs.

Here is a quick summary of the Chinese actions to if not prevent, then at least delay, financial and economic collapse.

First, in January, China aggressively stepped up measures to halt and slow down capital outflows that hit $1 trillion last year by boosting capital controls first described here last September. The tightening marked a reversal after years of easing that spurred global use of the yuan, a trend that turned on China when speculative bets against the currency offshore jumped.

Some of the primary measures have included:

  • Increased scrutiny of transfers overseas - Some Shanghai banks have recently asked their outlets to closely check whether individuals sent money abroad by breaking up foreign-currency purchases into smaller transactions and to take punitive action if violations were discovered, according to people familiar with the matter. Each person can send $50,000 abroad annually and so large sums can be transferred by utilizing the bank accounts and quotas of a range of individuals, a tactic known as smurfing.
  • Curbing the offshore supply of yuan to make shorting costlier - The PBOC told some onshore lenders to stop offering cross-border financing to offshore counterparts late last year, and on Jan. 11 advisedsome Chinese banks’ units in Hong Kong to suspend offshore yuan lending unless necessary. It’s also widened the scope of reserve requirements to include some yuan holdings of overseas financial institutions.
  • Restricting companies’ foreign-exchange purchases - Companies can only buy overseas currencies a maximum five days before they make actual payments for goods, having previously been free to make their own decisions on timing.
  • Suspension of foreign banks - DBS Group Holdings Ltd. and Standard Chartered Plc were among overseas banks suspended from conducting some foreign-exchange business in China until the end of March. The bans included the settlement of offshore clients’ yuan transactions in the onshore market and was introduced as a widening gap between the currency’s exchange rates in Shanghai and Hong Kong encouraged arbitrage trades.
  • Outbound investment quotas frozen - China has suspended new applications under the Renminbi Qualified Domestic Institutional Investor program, which allows yuan from the mainland to be used to buy offshore securities denominated in the currency. It has also refrained from granting new quotas for residents to invest in overseas markets via its Qualified Domestic Institutional Investor program since March.
  • Delaying the Shenzhen stocks link - China originally planned to start a link between the Shenzhen market and the Hong Kong bourse last year, but the plan was delayed amid a mainland equities rout.
  • UnionPay debit-card clampdown - New measures were introduced in December to crack down on illegal China UnionPay Co. card machines, which were suspected of being used to channel funds offshore via fake transactions, most notably in Macau casinos.
  • Underground banking clampdown - China busted the nation’s biggest "underground bank," which handled 410 billion yuan ($62 billion) of illegal foreign-exchange transactions, the official People’s Daily reported in November. The Shanghai branch of the SAFE said last week that it will crack down on illegal currency transactions, including underground banking.

However, a recent estimate by Goldman Sachs put the total January FX interventions (and thus capital flight) at $185 billion, well above the December total and the second highest since August. This would means that whatever China has done so far has failed to stem the tide of capital outflows.

 

Which explains the latest, second round of interventions. Once again, courtesy of Bloomberg, these are as follows:

  • impose restrictions on buying insurance products overseas - Moving to plug one popular way for moving money out of China, the currency regulator is imposing restrictions on buying insurance products overseas, people with knowledge of the matter said Tuesday. Purchases of insurance products overseas using UnionPay debit and credit cards will be capped at $5,000 per transaction effective Feb. 4, according to the people. Purchases of insurance policies by mainland visitors in Hong Kong reached HK$21.1 billion ($2.7 billion) last year through September, following a 64 percent surge in 2014, according to the city’s industry regulator.
  • Threaten bank chiefs with termination if targets are missed - Shang Fulin, chairman of the China Banking Regulatory Commission, told an internal meeting last month that banks would be forced to restructure, inject new capital or change their senior management if key risk indicators fall outside "reasonable ranges," people familiar with the matter said Tuesday. Those indicators include bad-loan coverage and capital adequacy ratios, Shang told the meeting, the people said.
  • Crackdown on Wealth Management Products - China’s central bank has told lenders it will require greater control over the amount of wealth management product funds they give to brokerages and other financial institutions to manage, people familiar with the matter said Tuesday. The People’s Bank of China told banks it will also impose more limits on the amount of proprietary funds managed by other institutions, and that it will tighten control of leverage taken on when buying bonds, the people said.
  • Lower minimum required down payment for a mortgage - The central bank said Tuesday it will allow banks to cut the minimum required mortgage down payment to 20 percent from 25 percent for first-home purchases to the lowest level ever as it steps up support for the property market. A rising stockpile of unsold new homes is hampering government efforts to spur investment expanding at the slowest pace in more than five years.

Expect many more actions and interventions over the coming months, all of which like last year, will be self-defeating as the harder China presses on its porous "capital" firewall, the more holes that will emerge.

Ultimately, what will happen is that the "Shanghai Accord" idea, in which China announces a dramatic one-off devaluation, is implemented which is perhaps the only shock-approach that could possibly stem the capital flight even if it comes at the expense of a global deflationary wave.

The only question is whether China will have any FX reserves left by then, and just how widespread public anger and civil discontent and disobedience will be as a result of mass layoffs and plant shutdowns as China, courtesy of mean reversion, finds itself in the same depression which its epic debt-creation engine in the period 2009-2014, and since shut down, saved the rest of the world from.

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Dental Floss Tycoon's picture

"warning bank executives that their jobs are on the line unless they control risks"

Imagine that.  Accountability in the banking industry!

Occident Mortal's picture

So China is suggesting all their financial managers stop doing their normal duties (providing capital and liquidity to the economy) and focus on chasing panicky people who are running around like headless chickens?

This is how the pot boils over.

zeronetwork's picture

I'm sick and tired of reading China collapse and it's economic meltdown. Sounds like a US media BS. I want to know what Chinese newspaper write about US economy.

Buckaroo Banzai's picture

China is an incredibly low-trust society. Selling out your own mother is a time-honored tradition there. Whatever corruption makes it into the US newspapers probably represents a tiny fraction of what is really going on there.

What the Chinese do have going for them is a very low time-preference; they plan for the next 20 years, not for the next quarter. And if, say, 50 million people have to die to achieve a generational plan, well, that's just a cost of doing business.

macholatte's picture

China .gov has NOT prohibited Chinese from buying foreign real estate.  If/when that happens, lots of countries are going to feel the pain.

The Chinese I know are very happy for 2 reasons:
1.  They bought real estate outside China.
2.   They don’t live in China anymore.

 

and what about this

ChemChina Set To Buy Swiss Syngenta For $43 Billion

 

monk27's picture

I'm not sure that living in US qualifies as an improvement. Those Chinese who bought into the hype and jumped into the US real estate market are about to get a wake up call. Also, when they'll get their Green Card they'll automatically get their chance to say "Hello !" to our beloved IRS, for reporting their global income...

zeronetwork's picture

Grass is greener on the other side of the fence.

old naughty's picture

perhaps we should all defocus on the as west, so east...

and lest we forget that "possibility" of war with aliens (from out there),

and so should focus on them and us?

Complex enuff? Beats Yellen-Kuroda-Draghi pulling "fast" ones on us (not them)?

Anyone heard the latest on the new IMF HQ bldg, or is that another "ghost", or 200+ volcanoes (a couple bigger than the thought-big ones) found in the depth of Indian Ocean during searchs for H370?

What the hell happened to Put-in lately. Soo quiet, not savior any longer?

Central Bankster's picture

Chinese.gov sponsored propaganda pays you how much per day to post on forums?  Can I recommend you demand your pay in Dollars, not local currency?

FreedomGuy's picture

Who supposes in their most sober mind that politicians know what to do? These are the same people who got them into this mess and oversaw ghost cities, currency devaluations and similar things.

The harder they try, the worse it gets.

Even Keynes advocated countering bubbles but everyone loves the bubble. It's full of happiness, prosperity (temporary) and tax revenues. So, they set the "normal" at the peak of the bubble and try to keep it there. It seems Keynes has only one application and that is on the downside.

eyesofpelosi's picture

A Chinese shit buffet...

"NOT ALL YOU CAN EAT...YOU PAY BY POUND!!!"

NoDebt's picture

Accountability grows from the barrel of a gun.

KnuckleDragger-X's picture

Starting an avalanche and then trying to stop it...Brilliant! Too bad there's that pesky inertia problem to deal with, but they'll find some magical way to make things worse.....

Offthebeach's picture

" Every time I hear the word 'responsible ', I reach for my gun."

Bruno Bernanke,
German street brawler, 1932.

LordBuckFast's picture

The agenda is clear and the truth is there will be no recovery, ever!

The worlds elite do not give a damn, as they will soon be looking to run and hide in those nice underground bunkers paid for with citizens taxes, after engineering a full economic collapse as well as starting WW3, plus they will make sure that there are enough Jihadi’s in the West to start a race war.

That should be enough to cover up the failed fiat ponzi scheme and take care of the ‘excessive’ population……

 

http://beforeitsnews.com/conspiracy-theories/2015/12/as-events-spiral-ou...

 

 


 

FreeShitter's picture

You forgot Nibiru is on the way

FreeShitter's picture

Its called sarcasm, sucksdicksatnight

eyesofpelosi's picture

....and that the reptilian Bigfoot ate a toddler in Kentucky...

eyesofpelosi's picture

Perhaps you should hook up with Lisa Haven over at BIN and stay there...

Menoetius's picture

Anecdotes and Observations:

1. New neighbors are Chinese. Bought the house from Shanghai with cash ($800k) sight unseen through Zillow (or similar). Showed up at airport and asked taxi driver to show them the house they purchased. They own no business in US and pretty much just hang out at the house.

2. From my vantage point just about the only work being done over the last year in China by design and planning firms pertained to Government-owned company projects. In the last 4 months or so, payment for design services for any of that work has not been forth coming. Government-owned companies still wish to continue with planning for future projects, but implementation of those projects has ceased. But absent fee payment, planning will cease as well.

It appears that Bejing is permitting Government-owned companies to pursue the purchase of foreign companies, perhaps as a hedge against domestic implosion. If so then the capital flight related to the same will not be curtailed.

My question is whether there's any concern that these Chinese government-owned companies will eventually 'repatriate' the companies that they purchase into China, thus establishing an 'instant noodle' economy - after their existing flotsam and jettsom is purged, of course.  

22winmag's picture

China has nothing on the U.S. when it comes to pulling financial strings!

 

Better dead than Red.

Joe Cool's picture

China is learning what it takes to keep financial markets together...They'll crash before we do...

SirBarksAlot's picture

Everyone knows the Chinese are smarter, than stupid, lazy Americans.  I'm sure they will come out on top!

Seasmoke's picture

They may work harder. But they definitely don't work smarter. 

monk27's picture

Yeah, we got to work so fucking smartly that we ended up with nothing to sell to the rest of the world...

NoDebt's picture

Iron-fisted fascism will save capitalism in communist China.  I just know this will work out fine.  It certainly has all the right ingredients.

Dr. Engali's picture
I’ve Abandoned Free Market Principles To Save The Free Market System’

 

              ~George Bush

NoDebt's picture

Exactly.  They are the best there is at making cheap copies of our stuff.

ThroxxOfVron's picture

<-- It's a devious plan.   So devious that we haven't figured it out yet.

<-- Throwing shit at the wall and praying for a miracle.

indio007's picture

An oxymoron or a moron on oxys?

economessed's picture

The communists make for lousy capitalists!

old naughty's picture

Or, the capitalists make for lousy communists...

they both end up facists, aen't we heading that way, no?

E.F. Mutton's picture

Have they tried Powdered Rhino Horn yet? Essence of Panda Penis?

Bangin7GramRocks's picture

They should try handing over trillions to their bankers. CNBC says that's how you prevent collapse. Trickle down Bitchez!

MSimon's picture

Trickle down Bitchez?

 

I prefer my Bitchez fresh.

Bangin7GramRocks's picture

That was the name of my B-Boy troupe at Wharton.

MadVladtheconquerer's picture

I love it when economies collapse.  bwahahahahahahahahahahahahahahahahahahhahahaha

Basketcase investing!  Don't try to catch the falling knife.

Blankone's picture

Then you must love what is happening in Russia right now.

Everyone is focused on China but the elite in Russia have begun the outright looting of Russia (again).

"The Russian government expects to get more than a trillion rubles ($12.8 billion) from the first round of state enterprise privatizations, reports business daily Vedomosti, citing unnamed federal officials."  from RT

The elite in Russia (with same unequal percentages of jewish as in the US) are looting the State agencies.  They sell them to themselves so when the collapse comes they hold the Russian economic power in their private hands.

While they floated the concept of doing this two yrs ago it is the unstable financial and economic conditions and how that instability is growing that has caused them to make their move to scoop it all up for themselves now.

This is no different than the selling of power, water and other infrastructure in the US to private companies.  Or how public roads are turned into private controlled toll roads to for the public to pay for driving. 

tarabel's picture

 

 

I have repeatedly made the point that the outcome of the Russia-Saudi Petro War would depend on which of the two Kilkenny Cats had the longer tail as they fight to swallow each other, and have suggested that Saudi access to the world bond market makes them the most likely winner.

Both Russia and Saudi are burning money in Middle East wars and both are making noises about privatizing state-owned assets. The fact that they are considering such a step indicates that the end is approaching in this drama. The additional fact that it is only talk and not yet action on this front suggests that the play still has another act or two to go before the curtain comes down.

Edward Morbius's picture

Send Ben Bernankenstein over there for a year to run things. 

DrBrown's picture

You so smart who won second world war?

tarabel's picture

 

 

Austria, Prussia, Russia, and Sweden broke the power of Napoleonic France at the Battle of Five Nations in 1813.

buzzsaw99's picture

20% down for first time buyers, imagine that. in freedumb's land it is 0%. the great capitalist usa. /s

Soul Glow's picture

PRINT MOAR MONIES!