2017: Even sharper drop in outbound investments - Shaun Rein

Shaun Rein

At the end of 2016 a sharp decline in outbound investments by China became clear as financial restrictions kicked in. Business analyst Shaun Rein expects the curtailing measures to last for at least six months into 2017, he tells the South China Morning Post.

The South China Morning Post:

Shaun Rein, managing director of China Market Research Group, said he expected outbound investment from China into the United States to drop sharply in the first three to six months of 2017. 

“First, the capital controls are very serious. Right now Chinese companies are hesitant to make an acquisition overseas because they’re worried that they won’t be able to get the approval to convert for foreign exchange. That situation should get better in general as fears of a currency collapse are alleviated,” he said. 

Fears that President Donald Trump may implement trade policies that target China will also weigh on investment, Rein said. 

“Chinese companies and Chinese tourists both are concerned that they won’t feel welcome in the United States any more. They’re scared that Trump will target them and target China,” he said. That, in turn, would boost investment into other markets like Europe and Australia.

More in the South China Morning Post.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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Financial restrictions hurt China´s outbound investments - Victor Shih

Victor Shih

Fast declining foreign reserves have pushed China´s financial authorities into severely restricting the outflow of capital. Outbound investment, like the Vancouver real estate industry, might be under pressure, says financial analyst Victor Shih in the Vancouver Sun.

The Vancouver Sun:

The new edict demands a written pledge that yuan converted into U.S. dollars will not be used to buy property overseas. It also creates a government black list and harsher penalties for violators. 

The new rules came into effect on Jan. 1, causing uncertainty in global real estate markets from London to San Francisco and, of course, Vancouver. 

Some have been doing back-of-the-napkin calculations to guess at what a sharper chokehold on Chinese funds could mean for a market already reeling from the additional property tax for foreign buyers. 

Others wonder how this latest move might compare with past attempts to cool the outflow of Chinese money. 

“I think this round of (foreign-exchange) crackdown is much more strictly enforced and (will be) longer lasting,” said Victor Shih, associate professor at the University of California, San Diego, who is researching the impact of elite networks in China. “Prior to the end of last year, even low-level private bank clients for major Chinese and transnational banks can easily transfer money from mainland accounts to offshore (ones.)   

Chinese authorities have now stopped this, he said. 

“In addition, when exchanging any amount of money in China, one now needs to specify the beneficiaries of the exchanged foreign currency, whether it be an overseas university, a tour group or a hotel,” Shih said. 

China’s foreign-exchange reserve has been rapidly emptying since 2015, he added. 

“Because money supply in China today is over US$20 trillion, even if a fraction of the money of the money supply were to get out, it can quickly wipe out China’s reserves. Thus, (Beijing) has to impose increasingly draconian restrictions on capital flows.”

More in the Vancouver Sun.

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more experts on China´s outbound investments? Do check out this list.  

How capital flight and US treasuries are linked - Paul Gillis

Paul Gillis

China sees a massive capital flight, putting its currency, the yuan, under pressure. For that reasons, says accounting professor Paul Gillis to the VOA, are capital flight and China´s garage sale of US treasuries closely linked.

The VOA:

An important reason for the slide in yuan is continuous capital flight from China. High-end Chinese savers have demonstrated a strong tendency to sneak money out of the country despite strong official measures to prohibit it. But if these savers lose confidence in the yuan, analysts say they most likely would suddenly try to get their money out of China, which could make the financial crisis a self-fulfilling prophecy. 

"China has experienced significant capital flight. What that means is the Chinese are converting their RMB savings into dollars and investing abroad," said Paul Gillis, a professor at Peking University's Guanghua School of Management. "When Chinese convert RMB into dollars, China uses its U.S. dollar holdings to buy the yuan. If it did not do so, there would quickly be an imbalance between buyers and sellers of the yuan, and the value of the yuan would plummet."

More in the VOA.

Paul Gillis is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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Capital control hurts competitiveness of Chinese firms - Shaun Rein

Shaun Rein

China´s financial authorities try to stem to massive outflow of capital but those counter measure severely hurt the competitiveness of Chinese companies, says business analyst Shaun Rein in the South China Morning Post. That is going to be a dilemma in the long run.

The South China Morning Post:

Shaun Rein, director of China Market Research Group, said the government’s control of outbound investment risks damaging the competitiveness of mainland companies. 

“That’s going to hurt them from acquiring technology and becoming innovative,” Rein said. “It also hurts their ability to become global players.” 

Rein said it was understandable for Beijing to impose stricter checks on capital flows because the Chinese government is under “massive pressure” to rein in yuan depreciation at the year end, as the US$50,000 quota will be renewed on the first day of 2017. From then, those who have used up their annual quota in 2016 can again purchase dollars.

More in the South China Morning Post.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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Currency floating looms if capital controls fail - Victor Shih

Victor Shih

A strengthening US dollar since the election of US president-elect Donald Trump might increase the outflow pressure of the Renminbi, and China might first try more stricter measures to increase capital control, says financial specialist Victor Shih to Bloomberg. But if that fails, financial authorities might consider a more uncontrolled floating currency to get the market into balance.

Bloomberg:

Dollar strength and rising U.S. interest rates under President-elect Donald Trump would intensify pressure on capital outflows from China, forcing its policy makers to choose between tightening capital controls or a drastic floating of the currency in coming months. 

That’s according to Victor Shih, a University of California at San Diego professor who studies China’s government and finance and specializes in tracking politics at the most elite level. 

"Given the Chinese government’s consistent preference for control, we may see much more Draconian capital controls before a decision to float the currency can be made," Shih said in an interview in Beijing. "The main objective is to avoid a panicky float."... 

China may face a stark choice between abandoning recent policy changes to tie the yuan more to a basket of currencies and letting it float more freely or stringent capital controls sometime in the next six to 18 months, said Shih. 

The Communist Party’s preference for control suggests economic reform is unlikely to accelerate, Shih said. He sees China following Russia toward slower growth and rising currency volatility.

More in Bloomberg.

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more financial experts at the China Speakers Bureau? Do check out this list.  

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After the hype: China has not been bleeding capital - Arthur Kroeber

Arthur Kroeber

The supposed capital flight from China has been keeping international financial markets more than busy. A hype, concludes economist Arthur Kroeber and author of China's Economy: What Everyone Needs to Know® after looking at the figures in China File.

Arthur Kroeber:

Even when China was losing reserves, stories about “capital flight” were grossly exaggerated. When a country experiences true capital flight—as Cyprus and Greece have in recent years—it shows up as a decline in bank deposits, as households pull their money out of domestic banks and send it abroad. In China, household bank deposits today are a healthy RMB 21.5 trillion, up 16 percent from a year ago. The vast majority of reserve losses reflected Chinese companies paying down foreign-currency debts, making real-economy investments abroad, or simply shifting cash into dollar accounts inside Chinese banks. 

The one truly important international impact of the weaker renminbi is that Chinese private companies have accelerated the pace of their investments abroad: outbound direct investment by Chinese firms in the first half of 2016 already exceeds the total for all of 2015. But even here the currency plays only a supporting role. The most important factor is that many Chinese companies are now mature enough to want to expand internationally—just as Japanese firms did starting in the 1970s. Second, China’s economy is slowing, so that investments in untapped markets abroad seem more attractive. And finally, companies have an incentive to move fast, because the longer they wait, the greater the risk that the renminbi will have fallen a bit more, making their investments more expensive. This is not capital flight, this is the Chinese economy growing up. And on balance, that’s a good thing for the world.

More in ChinaFile.

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

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Fight against capital outflows delays reforms - Sara Hsu

Sara Hsu

China has faced a record outflow of capital since the end of 2015. Efforts to stop that outflow, maybe needed, delay severely the planned liberalization of the financial markets, writes financial analyst Sara Hsu in the Diplomat. "The rate of change is dissatisfying to those calling for reform."

Sara Hsu:

Chinese regulators have attempted to curb legal capital outflows from banks, requiring banks to rigorously check corporate business transactions. Furthermore, although a large percentage of capital outflows are legal due to significant openness of the capital account, remaining capital controls continue to give rise to illegal capital outflows. Regulators have been cracking down on illegal cross-border outflows disguised as trade transactions. This battle will likely continue as long as China’s economy remains weak and exchange rate expectations remain negative. 

The fight against economic fragility has in important ways prolonged the reform process, especially the turn toward financial liberalization. Should interest rates be set low to improve economic conditions, or set high to reduce capital outflows? Should the exchange rate be allowed to fluctuate on speculative forces, or should instability be the controlled? Ironically, the same forces that prevail upon the RMB to depreciate would give exports a significant boost, pumping up the real economy. Despite some analysts’ beliefs that China has depreciated to buoy exports, this does not seem to be the ultimate aim. China does appear to be headed away from a manufacturing and export-based economy, but slowly. Exchange rate liberalization is occurring, but at a microscopic pace in spite of IMF’s exhortations to liberalize faster. 

The rate of change is dissatisfying to those calling for reform and shocking to those who demand greater stability. These contradicting forces may last through the year as China restructures and finds a healthier balance between market and government control.

More in the Diplomat.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Get in touch or fill in our speakers´ request form. 

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