Capital Crackdown: Companies Face Delays Getting Cash Out of China
Posted: December 19, 2016 Filed under: Asia, China, Economics, Global | Tags: American Motors, Apple Inc, Bank of Japan, Business Insider, China, Corporation, Donald Trump, Economy of China, People's Bank of China, United Kingdom Leave a commentNew 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.
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 »
China Stock Markets: Sharpest Dive Since 2007
Posted: August 24, 2015 Filed under: Asia, China, Economics, Mediasphere | Tags: Beijing, Caixin Media, China, Economy of the People's Republic of China, Financial crisis of 2007–2008, Hong Kong, International finance, People's Bank of China, Purchasing Managers Index, Xi Jinping Leave a commentChina’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 »
‘Not the Only Gorilla in the Jungle’: Japan Overtakes China as Largest U.S. Bondholder
Posted: April 16, 2015 Filed under: Asia, China, Economics, Global, Japan | Tags: Beijing, Economy of the People's Republic of China, Federal Reserve Bank of New York, Federal Reserve System, Financial Markets, Foreign exchange swap, Foreign-exchange reserves, Globalization, Monetary policy, People's Bank of China, United States Department of the Treasury, United States Treasury security Leave a comment
Japan’s purchases will help soothe lingering concerns that U.S. bond prices could decline as China slows its buying.
“China is currently the 800-pound gorilla in the U.S. Treasury market. However, it is not the only gorilla in the jungle.”
In reclaiming its status as the largest foreign creditor to America in U.S. official data, Japan is reasserting 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
Posted: December 29, 2013 Filed under: China, Economics | Tags: Bank of China, Bankers' acceptance, China, Fannie-Mae, IOU, People's Bank of China, Renminbi 2 Comments
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.