Hong Kong Cracks Down on Illegal Money Flows from China Trade

A teller counts US dollars and Chinese 100-yuan notes at a bank in Hefei, east China's Anhui province on January 16, 2011

A record net $674 billion left China last year, the International Institute of Finance estimates. A further $175 billion left China in the first quarter. 

Saint Chatterjee reports: Hong Kong is conducting a multi-pronged customs, shipping and financial sector crackdown against so-called fake trade invoicing that allows billions of dollars of capital to leave China illegally.

Hong Kong’s central bank told Reuters it has beefed up its scrutiny of banks’ trade financing operations, while customs officials are doing more random checks on shipments crossing border posts and conducting raids on warehouses to ensure the authenticity of goods, senior officials working in shipping, logistics and banking said. The head of a logistics company said surprise customs inspections at Hong Kong border posts had doubled.

A Hong Kong policeman stands guard at Hong Kong's border with Shenzhen, China April 29, 2016. REUTERS/Bobby Yip

A Hong Kong policeman stands guard at Hong Kong’s border with Shenzhen, China April 29, 2016. REUTERS/Bobby Yip

The sources declined to be identified given the sensitivity of the issues.

They said the increased efforts began this year and reflected concerns about billions of dollars in illicit cash authorities suspect are being channeled through Hong Kong following a stock market crash in China last year.

“Examinations and investigations reflect one of the strongest trends we are seeing now in the financial sector,” said Urszula McCormack, a partner at law firm King & Wood Mallesons, which helped co-author a report published by The Hong Kong Association of Banks in February that highlighted shipping as a sector where fake invoicing can thrive.

Rising property prices in the city mean few bookshops can afford ground-floor premises - except those backed by China’s official Liaison Office. Photograph: Jonas Gratzer/LightRocket via Getty Images

China has become increasingly concerned about capital outflows since the middle of last year when Chinese rushed to get money offshore for safekeeping or to invest following the stock market slump and unexpected yuan devaluation.

Hong Kong is the most popular route, analysts say, because of its proximity to China.

Chinese authorities have tried to staunch the outflows by tightening cross-border investment quotas, stepping up enforcement action of existing rules and restricting residents from buying financial products, such as insurance policies, offered in Hong Kong. But the trade channel had largely been left untouched given the complexity and magnitude of transactions involved.

A record net $674 billion left China last year, the International Institute of Finance estimates. A further $175 billion left China in the first quarter. China had been a long-term net importer of dollars. Read the rest of this entry »


May You Live In Interesting Times

china-stock-market-wsj

The latest drastic step by Beijing is a six-month ban on stock sales by controlling shareholders and executives who own more than 5% of a company’s shares. Any violation of the rule, announced Wednesday night, would be ‘treated seriously’

Shen Hong and Lingling Wei report: Since the last week of June, the Chinese government has intervened in the country’s stock markets nearly every day to stop their steep slide. But the harder NON-STOP-PANIC-EXChinese authorities try, the more it looks like they are losing control.

The Shanghai Composite Index fell 5.9% on Wednesday and is down nearly one-third from its peak on June 12. Since then, $3.5 trillion in value has been erased from companies in the benchmark index—or nearly five times the size of Apple Inc.

China’s bond market and currency also began to get hit Wednesday as worries deepened that a contagion from stock-market losses could further trammel the country’s slowing economy. It felt even more ominous because Chinese officials had rushed out another raft of emergency measures earlier Wednesday to reassure the market.

An investor at a brokerage firm in the Chinese city of Heifi on Wednesday. Individual investors who began selling in mid-June helped unleash a downward spiral of more selling. Photo: Reuters

An investor at a brokerage firm in the Chinese city of Heifi on Wednesday. Individual investors who began selling in mid-June helped unleash a downward spiral of more selling. Photo: Reuters

The moves only heightened what is turning into an epidemic of anxiety among Chinese investors and a crisis of confidence in their leaders. Stocks were volatile early Thursday.

“The more the government intervenes, the more scared I am,” said Li Jun, who runs a fishing and restaurant business in the eastern city of Nanjing. He has spent about 3 million yuan, roughly wsj-chart$500,000, on stocks, using borrowed money for about one-third of the total.

Mr. Li has sold some of his investments every time the market “popped up a little” following a rescue announcement by the Chinese government. “I have no faith” in its ability to halt the losses, he says. Wednesday’s drop left the Shanghai index down 32% from its peak and at its lowest level since March.

The latest drastic step by Beijing is a six-month ban on stock sales by controlling shareholders and executives who own more than 5% of a company’s shares. Any violation of the rule, announced Wednesday night, would be “treated seriously,” China’s securities regulator said.

Early Thursday, China’s central bank said it has provided “ample liquidity” to a company owned by the country’s top securities regulator. The company is lending the funds to securities firms, which then will use the money to buy stocks.

The Chinese government has been praised for driving decades of economic growth and keeping the economy strong during the global financial crisis. In recent years, Chinese authorities have struggled with rising debt levels and the need to reform the economy away from government-driven infrastructure programs and toward consumer spending.

As it fought slower growth and a weakening real-estate market, the government turned its attention to the country’s languishing stock markets.

But Beijing’s inability to stop the recent decline has rattled investors who have long been used to seeing the government use its power to control markets.

china-no-breaks

“Beijing’s latest bid to calm the market has had the opposite effect,” said Bernard Aw, market analyst at IG Group. “The panic is spreading, and authorities appear to be grasping at straws to hold back the tide.”

[Read the full text here, at WSJ]

U.S. Treasury Secretary Jacob Lew played down the possible world-wide impact of China’s stock-market mess, though he expressed worry that it could restrain the country’s longer-term growth if Beijing slows its promised economic overhauls. Read the rest of this entry »


Whole Foods to Pay $800,000 for Overcharging Customers


Stock Market Makes Money When? When Congress Does Nothing

“No man’s life, liberty, or property are safe while the legislature is in session”    

A new book on how to profit from the actions of Congress finds that historically, less government has generally been better for investors. In “Trade the Congressional Effect,” Eric Singer, a mutual fund manager who oversees the Congressional Effect Fund, looked at statistics over time and found that when Congress was in session, there was generally a negative effect on stock markets. The reverse was true when Congress was out of session.

In part, Singer says, this is due to investor uncertainty. But he also believes that Congress thinks too short term, and that Congressional legislation often has unintended consequences…

More

via Washington Whispers

“No Man’s Life Liberty or Property is Safe…While the Legislature is in Session”

– Judge Gideon Tucker (and appropriated by Mark Twain)