Presenting The Most Striking Way Chinese Are Evading Capital Controls

Tyler Durden's picture

First it was over-invoicing 'exports' to friends in Hong Kong; then it was Bitcoin, most recently it was buying domain names, and now, the ever-industrious (and increasingly desperate) Chinese have found a new way to beat the government's quasi capital controls... by losing.

China Law Blog's Dan Harris explains how the Chinese are getting money out of China by losing in Arbitrations...

File this one under “just when I thought I had seen/heard everything.”

A month ago (exactly) we wrote about how it is getting a lot tougher to get money out of China. See Getting Money Out of China: What The Heck is Happening? Two weeks later, our own Steve Dickinson was interviewed by Bloomberg for a video piece, entitled, The Problem of Getting Money out of China. In the meantime, our China lawyers are getting a whole host of phone calls and emails from mostly foreigners who want to know (1) whether what their China counter-parties are giving as an excuse for not being able to send funds to invest or buy is true and (2) what can be done to get the funds?

Some of those callers/emailers want to use us to test some idea/scheme/plan to get money out of China. With all due respect/disrespect, 99 times out of 100, their ideas are either severely flawed and/or likely to lead to jail time.

But my favorite out of all of them came in through from an “advisor” to a Chinese company and the scheme they wanted to run by me was a plan to have the Chinese company quickly lose an arbitration in the United States. This is what I quickly surmised anyway, but it took me a bit of probing to discern this. Here, very roughly and with changes made to improve blog flow and to camouflage any identifiers (including nationality),  is how our conversation went.

Australian advisor: Can your firm defend a Chinese company in a U.S. arbitration involving a $3.5 million breach of contract.

Me: Sure. Not a problem, but that is not going to be inexpensive and we are going to require a large amount be paid upfront.

Australian advisor: This one is going to be different because both sides will want it to move forward as quickly and as cheaply as possible.

Me: Okay, that may be what they are saying now, but once these things get started that very well might change.

Australian advisor: It won’t in this case.

Me: Okay (while thinking, how many times have I heard someone insist that their matter is the one in a hundred that strays from the norm?)

Australian advisor: The parties would even be willing to agree on the award.

Me: Then why do they even need to arbitrate? The fastest, cheapest, easiest thing for them to do would be to enter into a settlement agreement that can be enforced in both China and the U.S. I’m just assuming that the other side is a U.S. company and that is why the arbitration is in the U.S.

Australian advisor: There are extenuating circumstances.

Me: Like what. And by the way, do you have the contract with the arbitration provision in front of you right now. What exactly does it say about arbitration? Where is it supposed to be and before what arbitral body? Does it provide for the winner to get its attorneys’ fees?

Australian advisor: Not exactly. We were kind of hoping to have you draft the arbitration agreement.

Me:  What? What are you talking about? Now I’m really confused. You cannot have an arbitration unless both parties agree to arbitrate. Are you saying that the contract between these two parties does not provide for arbitration but now the parties have agreed to arbitrate? That’s possible.

Australian advisor: Yes.

Me: Okay, what is the name of the other party and who is its lawyer?

Australian advisor: We were going to ask you to form the American company and represent it too.

Me: What? I don’t get it. My firm can’t represent both your Chinese company and the opposing party. It just can’t.

Australian advisor: What if they were really the same party?

Me: But they’re not.

Australian advisor: Well, they really are.

Me: How is that?

Australian advisor: Because the whole point of this arbitration is to get an award that the Chinese company can show to the Chinese government.

Me: “Not interested. No way are we going to do this and I really don’t appreciate your having wasted my time. Good-bye.”

Get it?

The Chinese company wanted us to represent it in a completely fake arbitration that it would lose so that it could then send $3.5 million to its own U.S. company so that — no doubt — in turn that US company could buy a house somewhere in the United States.

Other lawyers: you have been warned.

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Durrmockracy's picture
Durrmockracy (not verified) Feb 16, 2016 7:35 PM

Money has a life of its own, it's foolish for government to ever believe they can control it.

TheDanimal's picture

Money is freedom, money is our deity. I'm ashamed of taking 26 years to figure that out.

tmosley's picture

This is actually pretty genius. Next time, they will contact seperate lawyers to set up the American company and represent the Chinese one, and no-one will be the wiser.

"But Mr. Local Party Chairman, we HAVE to send that money to America, we lost a lawsuit and have to pay a settlement."

Bloody genius.

DeadFred's picture

Other lawyers be warned, LOL. 9 out of 10 will be clamouring for a piece of the action.

CJgipper's picture

These guys found the one lawyer who would say no.  For 1%, I'll move as much as you can find.

Theosebes Goodfellow's picture

Are you kidding me? I wouldn't sully myself for less than a solid 2%. I have standards, you know.

zhandax's picture

Exactly.  At some point, we have all turned, or will turn whore to some extent and for some purpose.  The point is to not be a cheap one.

CJgipper's picture

I don't.  Send me your work.  Transfers limited to 1T per day though.

MSimon's picture

Money is freedom, money is our deity. I'm ashamed of taking 26 years to figure that out.


You know who figured that out at least 1,000 years ago?

MrSteve's picture

Governments can devalue money at their whim, history proves it.

Soul Glow's picture

God damn chinese are once again taking the price of gold down.  If anyone thinks the chinese are the good guys and that they are the opponent of the dangerous US banks well I have news for you, they are just as dirty.

Seasmoke's picture

Yup. 5 years ago I was afraid of the Chinese being dirty. I think I'm finding out the hard way I was correct. They must have some deal going to keep price suppressed so they accumulate the physical or else they dump $$$. Dump it ALL. If I only knew now what I knew then. but looks like Gold made me put my guard down. I bet on the Chinese against The Tribe. Oh well you only live once.

Buckaroo Banzai's picture

Of course the Chinese are dirty-- they're communists! That's what they do.

logicalman's picture

Fuck off.

They're not communists, just self interested power mad fucks like those in govermnent just about everyhwere.

Wake up!


SuperRay's picture

Easy there, logicalman.  I think you need a break to de-stress and get centered.  Try yoga...

NuckingFuts's picture

No, you don't understand. All you need to do is say COMMUNIST and it all makes sense.
Don't like someone's ideas?
See how much easier that is than thinking?

MSimon's picture

Chairman Mao ring a bell? CCP?

Zero-Hegemon's picture

Wait, I thought the word was RACIST?

Goddamit now I'm confused.

zhandax's picture

What clued you in?  We know it wasn't the Teevee you watch that put that silly concept there in the first place.

MSimon's picture

The Chinese are the Jews of the Orient - a very old saying.

Kaiser Sousa's picture

i dont think its really them Glow...

they r gonna be buying just like me and u no matter the fake ass paper games played in London and NY...

its so obvious that ALL the "so called selling" happens in London and NY...

its the fucking cartel bullion banks, the Fed and the ESF....

count on it.

Amalgamated Tang's picture

Don't stop now. Explain more. This is very interesting.

Amalgamated Tang's picture

They're trying to corner the gold market before the G20! They didn't expect the price to go up last week. They don't want the price to climb until they have a certain quantity.


Would they announce a BRICS currency at the G20? Backed by gold?

Kaiser Sousa's picture

what remains in western vaults r nothing but curmbs....

Eurasia has what they need...

just doin some house kepping to make sure the table is set and pretty....

Ameridumb is about to get a lesson yet again in what IS and WHAT aint REAL MONEY....


SuperRay's picture

Hey, no worries.  The USA has 8,000 tons of gold!  Whew.  I feel so much better now

zhandax's picture

"alleged" ring a bell?

squid's picture

Ok, I have to pick through this line by line as an illustration to show that if you try and view the Chinese via a western perspective, you will be continually confused and wrong.

QUOTE "God damn chinese are once again taking the price of gold down."

Well..... they want the gold, obviously, and we, the West, have designed a mentally retarded system that allows people with no gold to set the price for people that want actually to buy and hold real gold. The Chinese look at this mentally retarded system ( it takes them about 4 seconds to figure it out) and they decide that "Yes, we'll play this game and relieve the stupid Gwielow of their gold". It makes PERFECT sense to me. (Do note that Chinese slang for foreigner depends upon where you are in SEA and which dialect the predominant Chinese community is).


QUOTE "If anyone thinks the chinese are the good guys and that they are the opponent of the dangerous US banks well I have news for you, they are just as dirty."

This sentence is really strange and smacks of a Western mindset. In the West, we're generally intellictually lazy in terms of our relations with other people. We like to simplify things, group things so to speak. The white group, the black group for example. We do that to races even though the people that we refer to as white are not white and the one we refer to as black are not actually black....we simiplify it for ourselves. We do the same to people in general, good guys and bad guys as another example. Its a nice model, it simplifies things, but it bears ZERO resemblance to reality. What is a good guy from your perspective? What is dirty from your perspective? Why should a China-man respect an institution that charges interest on money that does not exist(A western bank)? They also think that is retarded but they can play that way too if you want. Remember, we invented this stupidity. All the Chinese are doing is using our fucked system to their advantage.


What the Chinese are doing makes absolutely perfect sense to me. The stuff I don't understand I watch and learn and then the light eventually comes on, I understand and have a new respect for them.


You have to admit, that scheme above is brilliant on its face. What is dirty about fucking the government? I think its fantastic.


Fuck the state. It wouldn't be necessary if we used gold as money but we don't and the reason we don't is the state wants to fuck each and everyone of us(via inflation). So be Chinese, fuck the state back.



Doña K's picture

The best group in avoiding taxes using complicated and brazen ploys are the Greeks and the Italians. 


squid's picture

All power to them I say.


buttmint's picture

Squid +100 Agreed, Orient and Occidental mindsetvastlhy different. Here is the analogy I employ: a funnel. The narrow-tight end is the West where ALL is Reductonsim, yes/no, black and white. A soundbite. The American Mind really doesn't wish to handle complexities. Linear thinking

Orient is the upper is broad end of the funnel where ALL is possible. Only 43 shades of grey and all is ambiguous, including the ground under your feet. Anything is possible AT THE SAME TIME!

Good post!


goldsansstandard's picture

Meanwhile, back in the hash mine, bit coin , which traded for 379 a few weeks ago, broke 400 a few days ago and is at 415 now.

This despite open warfare over future tweaks of the system.

When the bail ins were dropped on Cyprus, BC went ballistic. China is a little bigger than Cyprus.

If you hold it your hand, the thugs can grab it.

If you hold it your head, and they can't detect it, you own it.

Seems to me, with a total market value under seven billion, there is a chance BC could become quite precious for the folks in China who don't want to be devalued.

LetThemEatRand's picture

Said half or more of the lawyers in Florida -- "can you give me the number of that client, and will they let me take it on a contingency?"  For the People's Republic of China (most Floridians will get the last reference).

chubbar's picture

Well, how stupid is this Chinese guy. He could have gotten a contract with an arbitration clause off the fucking internet. Executed it and hired 2 different attornies to represent the ficticious clients. Christ, it would have been over in a week for 20 grand and they'd have their award.

nmewn's picture

"Australian advisor: The parties would even be willing to agree on the award."

And...thats when the lightbulb should have went

Amish Hacker's picture

Or when he said, "My secretary, Linda Green, can have the documents drawn up in no time."

CheapBastard's picture
Police Chase Corrupt Chinese Officials in Australia


An international police operation is targeting corrupt Chinese officials who have fled to Australia with an estimated $1 billion in bribes and embezzled money.

China has enlisted the help of several Western countries in a far-reaching anti-corruption campaign.

Within weeks, Australian authorities are expected to seize the assets of seven of China’s most wanted economic criminals.

It is part of China's Operation Fox Hunt, which began in July and is now targeting former communist officials who have relocated to the West, often under assumed identities. They are accused of stealing vast amounts of money from the state.


I suspect USA and Canada will follow since a few have been sent back already from the USA.

pitz's picture

It took the better part of a decade for Canada to send Charles Ng to the US on murder charges that had pretty clear-cut evidence.  So not a chance that Canada will be extraditing any corrupt Chinese officials any time soon.  That is, if there's actually any in  Canada.  Evidence of such is scant.

goldsansstandard's picture

But don't they all look alike?

chubbar's picture

The US is the safest place for these guys. Hell, here in the US we elect them president, or at least let them run, if they are really good at ripping off the state.

pitz's picture

Why would Chinese want money out of China?  Makes no sense to me whatsoever.    House in the US?  Why?  Chinese didn't get rich by buying some of the world's most overvalued assets.

If anything, the worry is inflows to China which could strengthen the Yuan and damage China's export industry further.  People selling property in, say, America or Canada, and using such to buy Chinese assets "on the cheap".


NoPension's picture

The currency is about to be devalued. Whether the government or the market does it, it's going to happen. The wealthy are trying to get out while the getting is good.

pitz's picture

I disagree.  The currency is about to shoot dramatically higher on account of the deflation of the Chinese credit bubble, and the need for Yuan to repay such internal debts.  Capital controls are to prevent foreigners (particularly those with USD$) from acquiring Chinese assets for cheap, closer to the bottom of the cycle, and to protect the Chinese from selling their domestic assets cheap to buy expensive foreign assets. 

Devaluation of the currency of a society that produces more than it consumes is very difficult, if not impossible to achieve.  Credit is zero-sum and self-limiting, and excesses usually lead to deflation (which is the definition of upwards currency valuation).


Mine Is Bigger's picture

Debts that cannot be repaid won't be repaid, unless they print even more yuan, of course. This will lead to devaluation.

If debts can be repaid by simply repatriating funds from overseas, then it's not a debt crisis.

But what do I know? All my knowledge about this kind of thing comes from reading ZeroHedge.

I would rather stand on the side of yuan's devaluation along with Kyle Bass, though.

Good luck with your prognosis!

pitz's picture

So there will be a default cycle.  But there will be huge demand for Yuan on account of such defaults as people lose confidence in private sector obligations.  Hence, no devaluation. 

Of course, some Chinese will choose to repatriate their personal assets from overseas, either to take advantage of the current bargain in Yuan, or to save their otherwise on-the-verge-of-default business ventures from default. 

After all, the best time to buy or to put money into a business is when its failing, and the cost of equity from a balance sheet perspective is fairly expensive.  Not when times are good and the cost of equity is relatively low.

CheapBastard's picture

More importantly for some is the fact it's a dictatorship, as well as, has the severe pollution problems. If the Gubmint loosens up their control, stops widespread corruption and also cures their pollution, China would be a wonderful place to live. Even Blankfine said that publicly to them when he gave a lecture there at one of their universities. He also said long-term he has alot of confidence they will do it.


Who knows, but many wealthier Chinese are not taking a chance and buying a place overseas, as you said. Hey, if you are wealthy enough why not have two places in different countries with completely different cultures, etc. If I were wealthier I'd love to have a second place in China, South Korea, Australia, etc. But I can barely afford my double-wide now, so I doubt I'll be doing any overseas buying any time soon.

pitz's picture

You sure the Chinese aren't merely selling their overseas property to protect their domestic interests?  They'll protect the golden goose far before they'll go about putting geese elsewhere, that's been my experience and knowledge of "Chinese" tactics. 

CheapBastard's picture

You make alot of great points. I'll have to do more reading on the subject but unfortunately I can't read Mandarin. I am limited to the english newspapers on the subject. I do know several Chinese families who have sent their children to the States for college to get away from the pollution. It's hard for them they say because they are limited how many dollars they are allowed to get each year.


I wonder what would happen if China did not limit the conversion of RMB into foreign currencies?

pitz's picture

"I wonder what would happen if China did not limit the conversion of RMB into foreign currencies?"


As I understand there are limits going the other direction, foreign currencies into RMB.   Foreigners are also severely limited on what Chinese investments they can buy.  Good luck, as a westerner, getting a brokerage account and buying mainland China stocks, for example. 

And yes, I know plenty of Chinese too. We're talking about over a billion people in China, of course their children will attend schools across the world.  With the "one child" policy, there's a lot of money that a family can lavish on their kid.  China is rising in the world, and the people who claim they're just going to constantly devalue are rather ignorant of what the long-term goal of China is -- basically to replace the United States as the world's dominant economic superpower. 

MSimon's picture

replace the United States as the world's dominant economic superpower.


I remember when Japan was going to do that.


You might  want to look at China's demographic problem. The country is aging .9 year per year.