Advertisements

Capital Crackdown: Companies Face Delays Getting Cash Out of China

sg

New regulations aimed at slowing the yuan’s decline create confusion for multinationals.

French construction-materials company Cie. de Saint-Gobain SA, is finding it harder to take its money out of China.

“The process of authorization is going to become longer now. The procedures will be controlled more strictly.”

— Javier Gimeno, head of Saint-Gobain’s China operations

The conglomerate—like all multinationals operating there—faces new delays in recent weeks as Chinese regulators impose tougher restrictions on the movement of capital out of the country to slow the yuan’s decline.

“The process of authorization is going to become longer now,” said Javier Gimeno, who heads Saint-Gobain’s China operations. “The procedures will be controlled more strictly.”

Nearly 7% of Saint-Gobain’s world-wide group sales come from Asia and Oceania, a large part of that from China. The new rules are adding confusion and anxiety to a process that had been getting much easier over the past year, he said. The shift could cause some multinationals to rethink future investments in a country where once-sure payoffs are suddenly facing an uncertain return, analysts say.

Featured Image -- 77093

As of late November, firms that want to exchange yuan into dollars in China now need approval for any transaction greater than $5 million. They also face tighter limits on amounts they can transfer in and out of bank accounts in China to affiliates in other countries, in a practice known as “cross-border sweeping.”

“We hear a lot questions from corporates about whether they will be able to repatriate their money in the future,” said Alexander Tietze, managing director at Acon Actienbank AG, a German bank that advises companies on Chinese investments. He expects foreign investments in China to slow, and cautioned that foreign takeovers or plans for new joint ventures could fail because of the controls.

With the Chinese economy struggling, multinationals have fewer opportunities to reinvest there, which makes it more difficult for them to do much with money trapped in China.

“A majority of clients are currently consolidating and restructuring their China business,” said Bernd-Uwe Stucken, a lawyer with Pinsent Masons LLP in Shanghai. Some clients are closing down their business, with new investments being the exception to the rule, Mr. Stucken said.

Adding to the confusion: it is unclear where the limits are, because regulators haven’t published official rule changes, but instead have given only informal guidance to banks, according to Daniel Blumen, partner at Treasury Alliance Group, a consulting firm.

Calls to the People’s Bank of China weren’t returned. Read the rest of this entry »

Advertisements

China’s Renminbi Is Approved as a Main World Currency 

01renminbi-web-master675

The I.M.F. decision will help pave the way for broader use of the renminbi in trade and finance, securing China’s standing as a global economic power.

HONG KONG — Keith Brasher reports: The International Monetary Fund on Monday approved the Chinese renminbi as one of the world’s main central bank reserve currencies, a major acknowledgment of the country’s rising financial and economic heft.

The I.M.F. decision will help pave the way for broader use of the renminbi in trade and finance, securing China’s standing as a global economic power. But it also introduces new uncertainty into China’s economy and financial system, as the country was forced to relax many currency controls to meet the I.M.F. requirements.

NYT China-Espionage

The changes could inject volatility into the Chinese economy, since large flows of money surge into the country and recede based on its prospects. This could make it difficult for China to maintain its record of strong, steady growth, especially at a time when its economy is already slowing.

The I.M.F. will start including the renminbi in the fund’s unit of accounting, the so-called special drawing rights, at the end of September. The renminbi will take its place alongside the dollar, the euro, the yen and the pound.

yuan-drudge

Many central banks follow this benchmark in building their reserves, so countries could start holding more renminbi as a result. China will also gain more influence in international bailouts denominated in the fund’s accounting unit, like Greece’s debt deal. Read the rest of this entry »


Capital Flight from China

Lots of money is escaping China’s porous capital controls

The man who calls himself Jack is a caricature of a small-time gangster. Sporting a chunky Louis Vuitton belt, a gold necklace and gold-rimmed sunglasses, he chomps on a Cuban cigar. He says he has come to a pawnshop across the street from the Ponte 16 casino in Macau, a gambling Mecca and former Portuguese colony that is administered separately from the rest of China, only for its fine Cohibas. But when asked for advice about how to exchange yuan held within China for foreign currency—a transaction officially limited by China’s capital controls—he breaks into a laugh and flashes a Chinese bank card. “Just swipe it,” he says. “However much money you have in your China account, you can transfer it here.”

[Read the full text here, at The Economist]

Macau’s role as an illicit way station to move cash out of China, away from the government’s prying eyes, is nothing new. In recent months, though, things have been busier than normal. Capital outflows were already on the rise because of worries about the economy. During the summer, after the stockmarket crashed and the government let the yuan weaken, they soared. Official data indicate that more than $150 billion of capital left China in August—a record (see chart).

20150919_FNC775_0

Faced with this exodus, the government launched a crackdown on underground banks, which run money across borders and arrange for matching onshore and offshore transactions. Police raided Macau’s pawnshops and arrested 17 people for laundering money. That appears to have slowed things down. When your correspondent visited pawnshops in Macau this week and asked whether they could help him shift 1m yuan ($157,000) out of China—three times what one can legally withdraw in a year—most demurred. Read the rest of this entry »


China Stock Markets: Sharpest Dive Since 2007

China-Selloff

China’s stock markets suffered their sharpest daily fall since the global financial crisis on Monday, with the government withholding support at a time when investors world-wide have been rattled by volatile selling in China and a slowdown in its economy. As WSJ’s Chao Deng and Anjani Trivedi report:

The Shanghai Composite Index’s loss of 8.5% by Monday’s close was its largest daily percentage decline since February 2007. Today’s performance reminded investors of an 8.5% drop on July 27, when worries mounted that authorities were pulling back on measures to prop up the market.

Monday’s performance erased Shanghai’s gains for the year, reverberated across Asia and weighed on global markets at an inopportune time for China. Next week, it will host world leaders for a memorial parade meant to show off its military power and increasing clout on the global stage. In addition, Chinese President Xi Jinping is slated to visit the U.S. next month. But a global selloff was already gathering pace by late afternoon in Asia, with European stocks and U.S. stock futures falling sharply. Read the rest of this entry »


Chinese Stock Market Chaos Could Be Worse Than Greek Debt Crisis: ‘The Disorder Could Be Monstrous’

china-stock-invest

While the world worries about Greece, there’s an even bigger problem closer to home: China

A stock market crash there has seen $3.2 trillion wiped from the value of Chinese shares in just three weeks, triggering an emergency response from the government and warnings of “monstrous” public disorder.

“If China does not find support today, the disorder could be monstrous.”

And the effects for Australia could be serious, affecting our key commodity exports and sparking the beginning of a period of recession-like conditions.

“State-owned newspapers have used their strongest language yet, telling people ‘not to lose their minds’ and ‘not to bury themselves in horror and anxiety’. [Our] positive measures will take time to produce results,” writes IG Markets.

“All short-selling — the practice of betting that stocks will fall — has been banned, and Chinese media has rushed to reassure citizens.”

“If China does not find support today, the disorder could be monstrous.”

In an extraordinary move, the People’s Bank of China has begun lending money to investors to buy shares in the flailing market. The Wall Street Journal reports this “liquidity assistance” will be provided to the regulator-owned China Securities Finance Corp, which will lend the money to brokerages, which will in turn lend to investors.

The dramatic intervention marks the first time funds from the central bank have been directed anywhere other than the banks, signalling serious concern from authorities about the crisis.

At the same time, Chinese authorities are putting a halt to any new stock listings. The market regulator announced on Friday it would limit initial public offerings — which disrupt the rest of the market — in an attempt to curb plunging share prices.

Featured Image -- 77093

“The market crash there is generating headlines, but it’s not going to have the same impact as a comparable crash would in a developed market.”

While the exact amount of assistance hasn’t been revealed, the WSJ reports no upper limit has been set.

All short-selling — the practice of betting that stocks will fall — has been banned, and Chinese media has rushed to reassure citizens.

Yesterday, shares in big state companies soared in response to the but many others sank as jittery small investors tried to cut their losses, Associated Press reports. The market benchmark Shanghai Composite closed up 2.4 percent but still was down 27 percent from its June 12 peak.

Experts fear it could turn into a full-blown crash introducing even more uncertainty into global markets as Europe teeters on the edge of a potential eurozone exit by Greece, after Sunday’s controversial referendum.

For Australia, the market crash in China is likely to impact earnings on key exports iron ore and coal, further slashing government revenue, while also putting downward pressure on the Australian dollar.

Jordan Eliseo, chief economist with ABC Bullion, said it was important to remember that the amount of wealth Chinese citizens have tied up in the stock market is relatively minor compared with western investors.

Stocks only make up about 8 per cent of household wealth in China, compared with around 20 per cent in developed nations. Read the rest of this entry »


‘Not the Only Gorilla in the Jungle’: Japan Overtakes China as Largest U.S. Bondholder

japan-stock-WSJ

Japan’s purchases will help soothe lingering concerns that U.S. bond prices could decline as China slows its buying. 

Min Zeng in New York, Lingling Wei in Beijing and Eleanor Warnock in Tokyo report: Japan dethroned China as the top foreign holder of U.S. Treasurys for the first time since the financial crisis, following a wave of purchases by buyers shifting money to the U.S. as Japan’s economic policies push down interest rates there.

“China is currently the 800-pound gorilla in the U.S. Treasury market. However, it is not the only gorilla in the jungle.”

–James Sarni, a managing principal at investment manager Payden & Rygel, which oversees $90 billion of assets

In reclaiming its status as the largest foreign creditor to America in U.S. official data, Japan is japan-chart-WSJreasserting itself as Beijing holds its Treasury portfolio steady amid a weakening Chinese economy.

“U.S. debt bears higher yields than government bonds offered in other rich nations, thanks to the perception of stronger U.S. growth prospects and to central-bank bond purchases that have driven yields near zero across Europe and in Japan.”

Private investors and official institutions in Japan owned $1.2244 trillion of U.S. government securities at the end of February, compared with $1.2386 trillion at the end of January, according to the latest monthly data released by the Treasury on Wednesday.

China held $1.2237 trillion of Treasury debt at the end of February, compared with $1.2391 trillion a month earlier.

Over the past year, Japan has boosted its holdings by a net $13.6 billion, while China’s holdings dropped by $49.2 billion.

“The single largest holder of U.S. long-term debt is the Federal Reserve, with more than $2 trillion. The amount has surged from $755 billion at the end of 2007, fueled by Fed purchases of long-term securities in response to the financial crisis”.

The Treasury data, released with a two-month lag, don’t capture all of the Treasury-bond holdings China may have parked at middlemen in places such as the U.K. and Belgium. Many analysts and investors believe China has considerable holdings bought through such intermediaries. The Treasury notes on its website that “it is difficult to draw precise conclusions about changes in the foreign holdings of U.S. financial assets by individual countries” from the capital-flow data.

“The shift also reflects changes sweeping China. The world’s most-populous nation has in recent months largely held its Treasury portfolio in place, reflecting a slowdown in the growth of its $3.73 trillion foreign-exchange reserve, the world’s largest, and an effort to shift those reserves toward higher-yielding assets.”

The Japanese purchases have helped drive long-term U.S. bond yields near record lows despite an economic expansion that averaged 2.7% annually over 2013-14. Those low yields have, in turn, helped keep down interest rates for Americans on everything from home loans to credit cards. Read the rest of this entry »


China’s Shadow Currency

Image Credit: REUTERS/Chance Chan

Image Credit: REUTERS/Chance Chan

Matthew Lowenstein writes:  China’s economy is straining to keep up a semblance of its former growth rate. The surest sign is the way a shadow market in bank paper has evolved to substitute the commodity that China is increasingly running short of: cash.

Bankers are passing around their own ersatz currency, stimulating trade with what, in effect, are off-the-books loans. As in the wildcat currency era of the United States, the antebellum period before America had a national currency, this paper trades at a discount from province to province. It is increasingly used for speculative purposes, is potentially inflationary, and is hard to regulate. The People’s Bank of China (PBOC) has been unable or unwilling to crack down, lest it provoke a serious slowdown. But when the world’s second largest economy must resort to passing around IOUs, the financial community should take note.

Bankers acceptance notes (BANs) are nothing more than a post-dated check with a bank guarantee. For example, a buyer in Chongqing might have a hard time passing checks to vendors in Shanghai. But if the purchaser gets his paper signed by, say, Bank of China, his check now has the guarantee of a major financial institution: it is money good. BANs facilitate trade by obviating the need for vendors to assess the creditworthiness of purchasers. But in China, this prosaic instrument of commerce has become a kind of shadow currency that allows under-reserved banks to purchase deposits, fuels speculation, and undermines the central bank’s control over the money supply.

“From the bank’s point of view, Banker’s Acceptance Notes are all about getting deposits,” explains a banker in Zhengzhou. In a typical transaction, a customer with cash in his pocket can put down 100 RMB as a security deposit and walk away with double that amount in BANs. The bank is pleased because it receives hard currency in return for its own funny money. The customer is delighted: he has turned 100 RMB in cash into 200 RMB in something almost as good. In effect, the bank has given the customer a 200 RMB loan without using a cent of cash.

Read the rest of this entry »