In the Financial/Economic News

[Randy W]

Checking oanda.com gives a rate of 6.852 today

 

in the SCMP

Revealed: the sneaky ways Chinese are moving money across the border

Foreign currency regulator SAFE sheds light on exodus of cash

 

 

Among the alleged offenders was Ningbo Big Fortune International Trade, which “colluded with several overseas companies”, “forged trade contracts”, “inflated prices to five to 20 times market prices”, and moved a total of US$119 million overseas ­between August and September 2015, the administration said.

The company was fined 22.8 million yuan (US$3.3 million) for “seriously disturbing foreign exchange market order”, the regulator said.

Fake invoices, false trade records and invalid customs forms were among the most common ways for money to be moved illegally.

 

. . .

 

Individuals also used creative methods to get their money overseas, the regulator said, with five people being fined for moving money through various means to foreign accounts.

In one case, a Guangdong resident used the US$50,000 annual foreign exchange purchase quotas of 84 people to remit US$4.35 million to his own accounts in Australia and Hong Kong from December 2015 to January this year. The person was fined 1 million yuan, SAFE said.

An individual from Shandong province siphoned US$2 million out of China between February and December 2015 by putting money into 41 bank accounts of his workers and ordering them to transfer the money overseas through online banking.

Another two people, like the others identified by the regulator only by their family names, used multiple accounts at underground banks from which they made a series of transfers overseas, each one below the official cap. In one further case an individual used as many as 31 separate bank accounts to move money to Hong Kong.

All the cases show how people are defying official efforts to stop the depletion of the country’s foreign exchange reserves.

 

 

[MikeandRong]

With a fine of only 3%-4%, no jail or return of funds plus the fine, that would hardly even seem to be the cost of doing business. They probably even have a falsified invoice somewhere to make up the difference of the fine.

 

There is always more to it than what you just read in the news, but come on, where is the deterrent?

[Randy W]

With a fine of only 3%-4%, no jail or return of funds plus the fine, that would hardly even seem to be the cost of doing business. They probably even have a falsified invoice somewhere to make up the difference of the fine.

 

There is always more to it than what you just read in the news, but come on, where is the deterrent?

 

 

The point is that taking money out of the country is frowned upon, and regulated to a degree - which is not the case in other, more free economies. Currency exchange limitations have definitely put on crimp on some foreign investing.

 

“SAFE is sending a message that punishment will continue,” Zhao said. “Financial institutions will be held responsible if they ­collude.”

However, there are doubts about how long the mainland can continue to clamp down at the cost of normal trade and business activities.

Andrew Collier, managing director of Oriental Capital Research, said: “They can’t keep this up permanently because too many companies need to buy [other] companies or conduct external transactions.

“I expect China will need to depreciate the currency in 2018 to reduce the pressure on capital flows.”

Fears of large-scale capital outflows were renewed after Moody’s downgraded China’s long-term local currency and foreign currency issuer ratings last week on debt concerns and amid expectations the US Federal Reserve would raise interest rates soon, driving the greenback up.

 

 

[Randy W]

in the SCMP - another stock market crash today July 17, 2017, now with a 10% per stock kill switch

 

China stocks plunge on ‘Black Monday’, with nearly 500 stocks falling by daily limit of 10pc

The widespread decline was triggered by fears of a prolonged scrutiny on the financial sector, analysts said

 

 

“This is a Black Monday,” said Wang Haijun, an analyst for Shanghai-based Zhongshan Securities. “The panic is sweeping across the markets, sparked by a plunge in the start-up board.”

 

A financial work conference chaired by President Xi Jinping over the weekend has stoked concerns that top policy makerswill tighten the scrutiny of the financial system.

“The conference has set the tone that financial deleveraging and strengthened financial supervision will exist for quite a long period of time in the future,” said Wu Kan, a fund manager at Shanshan Finance in Shanghai.

“Financial develeraging and tightening regulation are not totally surprising news. But the reason the new has dealt such a blow was because it sent a message about the time frame. The financial work conference is held every five years, so markets expect the tightening to last for the next five years,” said Cui Xuetong, a manager for Beijing-based Zhongtou Tiancheng Asset Management.

 

 

I'm not seeing any news about Tuesday, but it looks like Shenzhen was up 0.61%, and Shanghai was up 0.35%

Edited July 18, 2017 by Randy W (see edit history)

[Greg.D.]

A nice article speculating about the party shifting the burden of sustaining a growing economy to consumer spending:

 

It includes a succinct review of how it relied on massive amounts of loans to companies that would help "grow the economy" as well as international prestige of China. Now, it may be time to reel it in.

 

http://www.scmp.com/business/money/money-news/article/2105445/will-chinas-consumer-market-become-next-credit-bubble

Will China’s consumer market become the next credit bubble?

 

First, a recap of this shifting in China’s bubbles. The credit impulse that began in 2009 was China’s version of fiscal stimulus, using bank lending as the conduit. And it was targeted toward infrastructure investment, which led to a buildup in excess capacity in the industrial sector (e.g., steel, cement, etc.), which then resulted in a corporate credit bubble.

 

Indeed, China’s debt creation has been excessive, and far higher than other countries in recent credit bubbles. For context, in the five years between early 2009 and 2014 (when GDP growth started to slow), China’s private sector debt grew by 139 per cent of GDP. This compares with the US at 58 per cent of GDP or even Spain at 116 per cent between 2002-2007.

 

The result is that the stock of corporate debt is too high. Corporate credit in China is now at 171 per cent of GDP, which is the highest we can find globally, and is the source of the current non-performing loan cycle. By comparison, France’s corporate debt is at 125 per cent of GDP, Portugal is at 116 per cent, and even South Korea, which is widely seen as having high debt levels, is at 106 per cent.

[Randy W]

Looks like their controls are having an effect - all it took was a "frown" from the Chinese government. From the Business Insider

 

China has suddenly stopped buying foreign property

 

http://static5.businessinsider.com/image/59894ebe27fa6b423827ce79-1664/china%20property%20odi.png

 

 

The Chinese pulled 84% of their overseas property investments globally in the first half of 2017 after the government began officially frowning on a "negative list" of foreign investments that were attracting Chinese cash, according to Morgan Stanley.

The Chinese were 25% of buyers of central London commercial property in 2016, a recent note to clients from Morgan Stanley's research team said.

The sudden absence of China explains, in part, the recent softness in the London property market. Residential prices in London began falling in the last few months.

The Royal Institute of Chartered Surveyors currently describes the London property market as "stagnant."

"Over half the investment in the City over the past year has come from Asian investors," Morgan Stanley said, and only 15% comes from the UK. ("The City" refers only to London's financial district.)

 

 

[Randy W]

Will China wake up to what they have done through the Xi administration?

 

in Bloomberg

 

China Realizes It Needs Foreign Companies

Investment from overseas is falling. That's a big problem.

 

After China joined the World Trade Organization, in 2001, overseas investors couldn't wait to jump in. Foreign direct investment grew at an annualized rate of 10.8 percent from 2000 to 2008. Enticed by China's market size and development capacity, companies were willing tolerate almost any kind of restriction. They turned over intellectual property; entered into joint ventures as junior partners, essentially training their eventual competitors; and accepted restricted access to wide swathes of the economy.

Since the financial crisis, however, things have changed. Wages in China have risen by an average of 11 percent a year, making it less attractive for outsourcing. Despite years of complaints, intellectual property theft hasn't abated (just ask Michael Jordan, who had to wage a four-year court battle to get ownership of his own name in China). Add in an increasingly hostile business environment, and it's not surprising that overseas companies are losing enthusiasm.

. . .

China remains a fundamentally attractive place to invest, with a burgeoning tech scene, top-notch infrastructure and rapidly growing consumer class. It shouldn't take much to revive the interest of foreign companies. Leveling the playing field would be a good start.

 

 

[Randy W]

I'm leaving off the headline, since it really doesn't seem to apply to the article - from CNBC

 

Mexico is tapping Alibaba to help the country boost its trade ties with China.

 

"By partnering with Alibaba, we can expand Mexico's export options in China and in Asia more broadly, while enhancing Mexican [small- and medium-sized enterprises'] knowledge of e-commerce and cross-border trade," said Mexican President Enrique Pena Nieto of the memorandum of understanding inked with Alibaba.

The deal comes as Pena Nieto closes a trip to China on trade and investment, and is part of efforts to open new opportunities for Mexico, as President Donald Trump has threatened to kill the $1.2 trillion North American Free Trade Agreement, the foundation of trade for the U.S., Canada and Mexico.

 

 

. . . but this is where the headline comes in

 

For a long time, Mexico didn't need to look beyond the U.S. when it came to trade. But on the campaign trail, Trump said he would slap tariffs on both Mexico and China, something that appears to have pushed the two nations closer together. China reiterated during Pena Nieto's trip that it's open to signing a free trade agreement directly with Mexico. Mexican officials have previously echoed similar sentiments.

 

[Randy W]

A China bear gives in - from Bloomberg. My wife kept hoping the yuan would hit 7.0 - never quite made it.

 

Investor Who Lost Millions Finally Gives Up on His China Bet

In cool hindsight, the 45-year-old founder of Corriente Advisors sees last year’s Group of 20 summit in Shanghai as a key turning point. Like many investors, Hart suspects the meeting resulted in a tacit agreement among world leaders to prevent the yuan from tumbling. He calls it China’s “whatever it takes” moment -- when policy makers resolved to prop up the currency at any cost.

“China now has the breathing room it needs to either temporarily stave off a slowdown with fiscal and monetary stimulus, or reform, grow and upgrade itself into the world’s largest developed economy,” Hart said.

 

Whether or not China got help from other G-20 nations, the government has clearly succeeded in stabilizing the exchange rate. The yuan ended a three-year slide in late December and has rallied almost 7 percent in 2017, including a 0.5 percent increase on Thursday. It’s now trading at the strongest level in more than a year versus the greenback.

 

 

[Randy W]

. . . and the tech and sharing sectors. From the Financial Times, which did not seem to like me quoting from it - hopefully, you can access the article.

 

Why the wheels fell off China’s tech boom

 

 

 

“The transaction-oriented model is more or less done,” says Jason Ding, partner at Bain & Co consultancy in Beijing. “The bubble burst on the shared economy . . . It was pumped up by money on steroids. That’s all gone.”

The Chinese tech sector has developed a broad range of businesses in the space of four to five years. In 2018 alone about 100 tech start-ups became “unicorns” worth more than $1bn according to research group Hurun.

But the rapid expansion began to slow in the final quarter of last year. Capital is retreating or looking for deals in other regional markets, workers are rebelling and Beijing is flexing more regulatory muscle in the sector. Many of the tech businesses have found themselves with a fatal flaw of paying more to win customers than their customers bring in.

“I think the whole of China is trying to find a new business model,” says one industry executive and investor.

 

 

[Randy W]

. . . and the Guardian - Fairly good reading, but nothing new or earth-shattering


How the state runs business in China

Much of modern China’s epic growth was driven by private enterprise – but under Xi Jinping, the Communist party has returned to being the ultimate authority in business as well as politics.

 

But in his first term in office, Xi has overseen a sea change in how the party approaches the economy, dramatically strengthening the party’s role in both government and private businesses.

 

International governments have noted Xi’s interventionist instincts with alarm. When US officials were pressed in early 2019 to provide evidence that Huawei, the Chinese telecommunications giant, had facilitated spying on the US and its allies, they pointed out that Beijing had already made their case for them: first with the party’s systematic infiltration of private companies, and second with the introduction of a new national intelligence law in 2017. The law states that “any organisation and citizen” shall “support and cooperate in national intelligence work”.

[Randy W]

from the SCMP

 

Hong Kong stock exchange operator makes bid to buy London Stock Exchange for US$36.6 billion

• Would be second overseas acquisition by HKEX after it took over London Metal Exchange in 2012

“The proposed combination would strengthen both businesses, better position them to innovate across markets and geographies, and offer market participants and investors unprecedented global market connectivity,” the Hong Kong Exchanges and Clearing – the operator of the city’s stock market – said in a stock exchange filing.

 

 

[Greg.D.]

Rubio and Sheehan going after indexer MSCI to create a " - China" index and, for now, steer pension fund investing away from China:

 

https://www.bloomberg.com/opinion/articles/2019-09-10/rubio-s-china-proposal-looks-more-promising-than-trump-trade-war

 

These days, flows of capital matter at least as much as flows of goods. In fact, capital protectionism might pose a far greater threat to China, or to any other economic competitor, than trade protectionism. On Tuesday, China made it clear just how important overseas funds are to its growth and stability by announcing the removal of a decades-old hurdle to foreign investment. Many Western investors had long hoped for just such a development.

 

But frenzied innovation by the financial-services industry, designed to help money move between countries as cheaply and easily as possible, has also made it far easier to block off that flow. So it may be that this year’s most important and dangerous move in the escalating conflict between the U.S. and China may not have come from any presidential tweet on tariffs, but rather with a letter Senators Marco Rubio and Jeanne Shaheen sent last month to Michael Kennedy, chairman of the group that oversees the federal government’s main retirement savings fund.

 

Rubio, a Florida Republican, and Shaheen, a Democrat from New Hampshire, urged the Federal Retirement Thrift Investment Board not to go forward with a plan to redirect part of its portfolio so it tracks a widely followed investment index that includes some Chinese companies. The senators complained that the decision to mirror the gauge ― the MSCI All-Country World excluding the U.S. index ― “will effectively use these retirement savings to fund the Chinese government and Communist Party’s efforts to undermine U.S. economic and national security.” They also cite other concerns, including lack of transparency and the potential for fraud among Chinese-listed firms, saying the investment change will expose some $50 billion in retirement assets to material risks.

[Randy W]

Rubio and Sheehan going after indexer MSCI to create a " - China" index and, for now, steer pension fund investing away from China:

 

https://www.bloomberg.com/opinion/articles/2019-09-10/rubio-s-china-proposal-looks-more-promising-than-trump-trade-war

 

These days, flows of capital matter at least as much as flows of goods. In fact, capital protectionism might pose a far greater threat to China, or to any other economic competitor, than trade protectionism. On Tuesday, China made it clear just how important overseas funds are to its growth and stability by announcing the removal of a decades-old hurdle to foreign investment. Many Western investors had long hoped for just such a development.

 

But frenzied innovation by the financial-services industry, designed to help money move between countries as cheaply and easily as possible, has also made it far easier to block off that flow. So it may be that this year’s most important and dangerous move in the escalating conflict between the U.S. and China may not have come from any presidential tweet on tariffs, but rather with a letter Senators Marco Rubio and Jeanne Shaheen sent last month to Michael Kennedy, chairman of the group that oversees the federal government’s main retirement savings fund.

 

Rubio, a Florida Republican, and Shaheen, a Democrat from New Hampshire, urged the Federal Retirement Thrift Investment Board not to go forward with a plan to redirect part of its portfolio so it tracks a widely followed investment index that includes some Chinese companies. The senators complained that the decision to mirror the gauge ― the MSCI All-Country World excluding the U.S. index ― “will effectively use these retirement savings to fund the Chinese government and Communist Party’s efforts to undermine U.S. economic and national security.” They also cite other concerns, including lack of transparency and the potential for fraud among Chinese-listed firms, saying the investment change will expose some $50 billion in retirement assets to material risks.

 

 

The conclusion of the article

 

 

. . . For example, retirees need clear air to breathe when they retire. They also arguably need a China that doesn’t steal jobs and intellectual property from the U.S. There is sense in this, but also the danger that allocating capital will degenerate into a fight between different political priorities. If pensions, endowments, sovereign wealth funds and other forms of long-term capital are turned into political vehicles, then earning a return, and allocating capital to where it can be best used, will grow far harder.

 

Rubio and Shaheen are advocating the use of a blunt instrument to advance aims that may be better pursued through normal diplomatic channels. It should be used with care.

 

 

I used to invest in China through mutual funds (MCHFX and FXI) and ADR's, but got out long ago before they lost their attraction to investors 8 or 10 years ago. The Chinese stock market is FAR too volatile thanks to flaky investors and the government involvement.

 

But I still have investments in Ali Baba, Sands (they have a large Macau casino), and Nagacorp.

Edited September 13, 2019 by Randy W (see edit history)

[Greg.D.]

So, the "emerging markets minus China" index would not only steer the government managed pension funds away from China but also redirect lots of passive investing that would just follow the dominant index normally.

 

True, party-involvement in SOE's is a black box (even before the Xi-enforced loyalty pledges) but legal recourse to malfeasance is still non-existent for western interests in China.

 

Anyway, it could block about $80 billion of U.S. Dollars or more from going into China each year. There is also some back story about China ("we'll never be a hegemon") using strong arm tactics to force MSCI to include their companies in the index.