6 ms·

China Estimates Largest Capital Outflow in More Than a Decade in 2014

40 points by fown9 12y ago

randomname2 12y ago
"Mr. Tao informed the audience that the capital flight from China in December alone amounted to $20 billion, and that was just from official channels. The true amount could be four times greater." So this bureaucrat just committed career suicide by admitting this.
- differentView 12y ago
  Where did you read that? Are you responding to a different article?
- dualogy 12y ago
  Not really, think again. China needs to convert their $4T into "real value" sooner or later. Rather sooner. Various official statements over the last year indicated as much: "after decades of accumulating dollars and treasuries, we have concluded that it would be wiser to reverse course and start spending them". This presents them with two problems, the danger of being accused of dumping dollars (aka of agressive currency warfare), and the risk that doing so too much, too fast could crash the value of their remaining holdings when "financial markets" see what you're up to. Much better to let your 1.3 billion people do the job: seemingly-inadvertently "encourage" capital flight and replace any too many "capital outflows" with your reserves. Your folks buy up assets all over the world and officials have the excuse of an emergency situation that justifies "using our reserves that were always meant for a rainy day just like this". Just a wild little theory of mine. Take it or leave it ;D
  - thatsjustcrazy 12y ago
    Interesting speculation. Anecdotally, I've heard that in some H1B situations where real estate is purchased, a % of the sale price is given back to the Chinese government.
sandworm 12y ago
I know where it's going. My neighbourhood in Vancouver BC is covered in "for sale" signs. There are minivans full of Chinese investors paroling the sidestreets looking for houses. The downside is that, by my count, more than half of the houses are vacant or under construction. I smell bubble.
- hnnewguy 12y ago
  >I smell bubble. Canada is one of the last-men-standing as far as housing bubbles. Toronto is also bad. Calgary is heading for trouble now that oil has crashed. It could get interesting.
  - jusben1369 12y ago
    Australia and Canada are very similar. Both continued with a housing bubble well after all other Western markets collapsed. Both also supplied the raw materials that fuel China's economy; an economy that didn't slow down very much while the rest of the West suffered. But now they're clearly takings some of the heat out of their economy. Australia and Canada will feel that.
    - curiously 12y ago
      but just when will this bubble burst and are there any metrics or signs we can find that have suggested the bursting of subprime mortgage debts in 2008?
      - adventured 12y ago
        China's bubble has already burst. Their real estate market will continue to fall indefinitely. Their record debt accumulation will continue until they burst at the seams, while they try to keep the fake growth going. Australia will trend down with China's weakening demand for resources. They're directly pegged to China's well being. Canada will trend down (or up) with oil. If oil is $30-$60, Canada will have to tighten their belts. If oil is $60 to $100, all will be well, mostly. That said, Canada's ability to binge on debt is likely nearing an end (including mortgage debt). Their household debt has continued to soar post great recession. Given where it's at now, there isn't likely a lot of runway left. 1-3 years tops. As the debt binge ends, the housing market will lose a lot of support. The only question will be whether it'll be an orderly decline, or a crash; and I think that will depend on how much higher that household debt level goes over the next ~36 months. http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/canadian-household-debt-rises-to-record-level/article22082881/ http://www.theglobeandmail.com/globe-investor/personal-finan... The Canada vs US household debt chart paints the picture rather starkly: http://i.imgur.com/HCp5Gs1.png http://i.imgur.com/HCp5Gs1.png
mc32 12y ago
This a problem in first tier cities even in the US. It's not only the IPO crowd driving up prices in SF, NYC, etc. But these foreign investors --the IPO people get the flack from displaced communities, but foreign investment contributes its own good share of this new housing shortage... It's begun to affect second tier cities like Minneapolis, Austin, etc.
- mikecuesta 12y ago
  Try living in a city like Miami where a staggering amount of condos/property are primarily treated as a store of value by foreigners.
  - mc32 12y ago
    Sorry, but I agree, this is being felt by all first tier cities, like Miami, as well as second tier metros.
- deleted 12y ago
  [deleted]
rrggrr 12y ago
So what? Of course China's capital outflows were huge in 2014 - so was its current account surplus. When China takes in huge amounts of foreign currency for its exports it must recycle those funds - which flow out of the country - particularly if it insists on intervening in the value of its currency (keeping it from increasing and therefore subsidizing exports). So, huge capital outflows for China doesn't necessarily mean a China-driven housing or asset bubble. It does mean the European Central Bank and Federal Reserve should have no problem continuing to sell paper.
eyeareque 12y ago
I wish HN would ban paywalled article links.
- vonklaus 12y ago
  I also think that would make sense. Paywalling is a legitimate business strategy amd I don't fault these companies for wanting to get paid for content creation. However, HN is an aggregator so many people can't view an article like this. If a paywall article is posted, it would be nice to have a link to a plain text version or alternate link. I think this would be a good compromise.
  - mikeash 12y ago
    All you have to do is Google the title and click the link from there, and no paywall.
  - tzakrajs 12y ago
    Isn't your good compromise just US Copyright violation by another name?
    - droopyEyelids 12y ago
      Not really, many online publishers allow direct access to shared links as an enticement to potential subscribers, it's like turning your reader base into your sales force.
      - tzakrajs 12y ago
        I never knew this, cool! I think HN mods should negotiate some sort of deal so the links can be non-paywalled if you are coming through news.ycombinator.com.
  - deleted 12y ago
    [deleted]
__Joker 12y ago
Apart from investing in real estate abroad, last year, Chinese folks were buying huge amounts of bitcoins. What is the reason, Chinese people trust their economy less than the western economy ?
- frankchn 12y ago
  Evading capital controls, perhaps? Since the Yuan is not fully convertible, you can get USD from Yuan by using Bitcoin as an intermediary.
  - Canada 12y ago
    Chinese capital controls are easing. The country has a lot of cash and continues to have a lot of income from exports. They're buying nice stuff and taking luxury vacations. They're investing in foreign companies and property. They can afford to, so why not? Were they supposed to just sit on the funds forever?
quarterwave 12y ago
I am reading this book 'The Dollar Trap: How the US dollar tightened its grip on global finance' [1], where economist Eswar Prasad explains how money flows into the US from around the world even when troubles originate in U.S financial markets. [1] http://thedollartrap.com/ http://thedollartrap.com/

40 points by fown9 12y ago

"Mr. Tao informed the audience that the capital flight from China in December alone amounted to $20 billion, and that was just from official channels. The true amount could be four times greater." So this bureaucrat just committed career suicide by admitting this.

differentView 12y ago
Where did you read that? Are you responding to a different article?
dualogy 12y ago
Not really, think again. China needs to convert their $4T into "real value" sooner or later. Rather sooner. Various official statements over the last year indicated as much: "after decades of accumulating dollars and treasuries, we have concluded that it would be wiser to reverse course and start spending them". This presents them with two problems, the danger of being accused of dumping dollars (aka of agressive currency warfare), and the risk that doing so too much, too fast could crash the value of their remaining holdings when "financial markets" see what you're up to. Much better to let your 1.3 billion people do the job: seemingly-inadvertently "encourage" capital flight and replace any too many "capital outflows" with your reserves. Your folks buy up assets all over the world and officials have the excuse of an emergency situation that justifies "using our reserves that were always meant for a rainy day just like this". Just a wild little theory of mine. Take it or leave it ;D
- thatsjustcrazy 12y ago
  Interesting speculation. Anecdotally, I've heard that in some H1B situations where real estate is purchased, a % of the sale price is given back to the Chinese government.

sandworm 12y ago

I know where it's going. My neighbourhood in Vancouver BC is covered in "for sale" signs. There are minivans full of Chinese investors paroling the sidestreets looking for houses. The downside is that, by my count, more than half of the houses are vacant or under construction. I smell bubble.

hnnewguy 12y ago
>I smell bubble. Canada is one of the last-men-standing as far as housing bubbles. Toronto is also bad. Calgary is heading for trouble now that oil has crashed. It could get interesting.
- jusben1369 12y ago
  Australia and Canada are very similar. Both continued with a housing bubble well after all other Western markets collapsed. Both also supplied the raw materials that fuel China's economy; an economy that didn't slow down very much while the rest of the West suffered. But now they're clearly takings some of the heat out of their economy. Australia and Canada will feel that.
  - curiously 12y ago
    but just when will this bubble burst and are there any metrics or signs we can find that have suggested the bursting of subprime mortgage debts in 2008?
    - adventured 12y ago
      China's bubble has already burst. Their real estate market will continue to fall indefinitely. Their record debt accumulation will continue until they burst at the seams, while they try to keep the fake growth going. Australia will trend down with China's weakening demand for resources. They're directly pegged to China's well being. Canada will trend down (or up) with oil. If oil is $30-$60, Canada will have to tighten their belts. If oil is $60 to $100, all will be well, mostly. That said, Canada's ability to binge on debt is likely nearing an end (including mortgage debt). Their household debt has continued to soar post great recession. Given where it's at now, there isn't likely a lot of runway left. 1-3 years tops. As the debt binge ends, the housing market will lose a lot of support. The only question will be whether it'll be an orderly decline, or a crash; and I think that will depend on how much higher that household debt level goes over the next ~36 months. http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/canadian-household-debt-rises-to-record-level/article22082881/ http://www.theglobeandmail.com/globe-investor/personal-finan... The Canada vs US household debt chart paints the picture rather starkly: http://i.imgur.com/HCp5Gs1.png http://i.imgur.com/HCp5Gs1.png

mc32 12y ago

This a problem in first tier cities even in the US. It's not only the IPO crowd driving up prices in SF, NYC, etc. But these foreign investors --the IPO people get the flack from displaced communities, but foreign investment contributes its own good share of this new housing shortage... It's begun to affect second tier cities like Minneapolis, Austin, etc.

mikecuesta 12y ago
Try living in a city like Miami where a staggering amount of condos/property are primarily treated as a store of value by foreigners.
- mc32 12y ago
  Sorry, but I agree, this is being felt by all first tier cities, like Miami, as well as second tier metros.
deleted 12y ago
[deleted]

rrggrr 12y ago

So what? Of course China's capital outflows were huge in 2014 - so was its current account surplus. When China takes in huge amounts of foreign currency for its exports it must recycle those funds - which flow out of the country - particularly if it insists on intervening in the value of its currency (keeping it from increasing and therefore subsidizing exports). So, huge capital outflows for China doesn't necessarily mean a China-driven housing or asset bubble. It does mean the European Central Bank and Federal Reserve should have no problem continuing to sell paper.

eyeareque 12y ago

I wish HN would ban paywalled article links.

vonklaus 12y ago
I also think that would make sense. Paywalling is a legitimate business strategy amd I don't fault these companies for wanting to get paid for content creation. However, HN is an aggregator so many people can't view an article like this. If a paywall article is posted, it would be nice to have a link to a plain text version or alternate link. I think this would be a good compromise.
- mikeash 12y ago
  All you have to do is Google the title and click the link from there, and no paywall.
- tzakrajs 12y ago
  Isn't your good compromise just US Copyright violation by another name?
  - droopyEyelids 12y ago
    Not really, many online publishers allow direct access to shared links as an enticement to potential subscribers, it's like turning your reader base into your sales force.
    - tzakrajs 12y ago
      I never knew this, cool! I think HN mods should negotiate some sort of deal so the links can be non-paywalled if you are coming through news.ycombinator.com.
- deleted 12y ago
  [deleted]

__Joker 12y ago

Apart from investing in real estate abroad, last year, Chinese folks were buying huge amounts of bitcoins. What is the reason, Chinese people trust their economy less than the western economy ?

frankchn 12y ago
Evading capital controls, perhaps? Since the Yuan is not fully convertible, you can get USD from Yuan by using Bitcoin as an intermediary.
- Canada 12y ago
  Chinese capital controls are easing. The country has a lot of cash and continues to have a lot of income from exports. They're buying nice stuff and taking luxury vacations. They're investing in foreign companies and property. They can afford to, so why not? Were they supposed to just sit on the funds forever?

quarterwave 12y ago

I am reading this book 'The Dollar Trap: How the US dollar tightened its grip on global finance' [1], where economist Eswar Prasad explains how money flows into the US from around the world even when troubles originate in U.S financial markets. [1] http://thedollartrap.com/ http://thedollartrap.com/