from Zero Hedge:
“The immediate trigger for a pickup in capital outflows toward the end of the year was the People’s Bank of China’s poor communication over its shift in currency policy,” Mark Williams, chief Asia economist for Capital Economics told Bloomberg on Sunday, describing the panicked reaction to Beijing’s adoption of a trade-weighted currency index.
Over $1 trillion in capital flowed out of China in 2015 as the PBoC’s bungled move to devalue the yuan caused investors to question whether a much larger depreciation is in the cards.
According to Bloomberg’s estimates, $158.7 billion left the country last month, the second highest monthly total of 2015 after September’s $194.3 billion hemorrhage.
Things had calmed down going into December and probably would have stayed calm at least in the interim had the PBoC not introduced a new trade-weighted index for the yuan which pretty clearly indicated that China still thinks its currency is overvalued.
Indeed, assuming the dollar continues to appreciate versus global currencies, the yuan will need to fall significantly in order to keep the trade-weighted RMB stable.
In short, China is no longer willing to take it on the chin in the global currency wars. The days of Beijing sitting idly by and watching as the dollar peg kills the country’s export competitiveness are over.
As 2015 turned to 2016 we got still more volatility and indeed, fresh devaluation fears contributed mightily to the market turmoil we witnessed in January.
“China’s yuan policy has a communication issue” the IMF’s Christine Lagarde said last week.
Indeed, but one thing that has been clearly communicated to Chinese citizens is that they need to get their money out of China – and fast. Technically, Chinese are limited to $50,000 in terms of how much they can move out of the country in a given year, but as we’ve documented extensively, there are any number of ways to skirt the restrictions.
“Thanks to incremental reforms to China’s capital account enacted while the yuan was still strong, it is easier than ever for Chinese companies and individuals to get money out legally,” Reuters writes, adding that Chinese “can buy property, or invest in offshore stocks, bonds or managed hedge funds; they can purchase offshore life insurance that can be used as collateral for further loans, or even buy a foreign company outright.”
And those are just the legal outlets. Chinese can also use the UnionPay end-around (although Xi has cracked down on that) or simply visit “Mr. Chen” at his “tea” kiosks. Here’s more from Reuters on Beijing’s “more holes than fingers” problem:
As a slick slide presentation runs for the well-heeled investors jammed into the banqueting hall of Shanghai’s Renaissance Yangtze Hotel, an image flashes up of a grinning Chinese man pushing a wheelbarrow full of cash into Europe.
Another slide features a car bearing a Chinese flag preparing to drive into a pit. For wealthy Chinese, desperate to avoid further falls in a currency that has shed 6 percent against the dollar since August, the message is clear.
“The yuan will keep depreciating as time goes by, so we should swap the money we have in hand into tangible assets,” Li Xiaodong, chairman of Canaan Capital, tells his audience, while exhorting them to pull their money out of China while the going is still good and pour it into property in Spain and Portugal.
Canaan Capital is one of a swarm of asset management firms leaping to profit from Beijing’s latest policy headache: the swelling crowd of Chinese individuals and firms trying to get their money out of the world’s second biggest economy as its growth slows to a quarter-century low.
One Shanghai-based investment company, Zengda, plans to guide Chinese money into mines, land and gas projects in Africa.
Others use trade and even tourism transactions to get money out of the country – contributing to the $200-$500 billion Chinese tourists are estimated to spend abroad annually.
The trend has grown so rapidly that some international banks are bolstering their wealth management divisions, encouraged by data showing money pouring out of China.
China’s central bank and commercial banks sold a net 629 billion yuan ($95.61 billion) worth of foreign exchange in December, nearly triple the figure for the previous month.
Estimating capital flight out of China isn’t an exact science and different analysts look at different proxies to determine just how leaky the ship is, so to speak. “In the wake of the small devaluation of the renminbi in August 2015, and more recently the weaker fixes in the first week of the new year, we have received a large volume of questions about capital outflows from China – how big they are, what the main sources of outflows, and how long they can continue,” Goldman says, in a note out Monday.
In an effort to shed some light on where to look for accurate data on capital flight, Goldman breaks down the relevant data points on the way to determining that from August to December, $449 billion in capital left the country.
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