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crisis in china
Wealthy Chinese Send Their Money Elsewhere

People’s Bank of China Governor Zhou Xiaochuan came out on Sunday to say, basically, that despite what you may be hearing, everything is fundamentally under control in China. Bloomberg:

The nation’s balance of payments is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, Zhou said in an interview published Saturday in Caixin magazine. That’s an escalation in verbal support after such comments have been left in recent months to deputies and the central bank research department’s chief economist.

Many wealthy Chinese citizens don’t seem to agree, and it’s led, for example, to the proliferation of a practice called “smurfing.” According to The New York Times, smurfing is the name for one of the ways that people are using to get money out of the China. Since there is a $50,000 limit to how much money any one person can take out of the country per year, wealthy Chinese citizens often ask their friends or others to carry money out of the country for them. The practice isn’t new, but it’s becoming a bigger problem because of China’s economic troubles—and capital flight will in turn likely make those troubles worse:

If the government cannot keep citizens from rushing to the financial exits, China’s outlook could darken. The swell of outflows is a destabilizing force in China’s slowing economy, threatening to undermine confidence and hurt a banking system that is struggling to deal with a decade-long lending binge [. . .]

China is also trying to put the brakes on outflows, by tightening its grip on the country’s links to the global financial system. The government, for example, just started to clamp down on people’s use of bank cards to buy overseas life insurance policies.

Accelerating capital flight puts pressure on the economy and especially the yuan. Although Zhou says there’s no scheme in the works to make capital controls more strict, we wouldn’t be surprised to see an already-anxious government take more extreme measures to clamp down on its people in order to keep them from taking money out of the country. As we’ve noted, the biggest reason to worry about China is not the economic problems the country faces per se. The most troubling indicator is that the government may be losing confidence in both the country’s future and the loyalty of its citizens. We expect capital flight to exacerbate tensions between officials in Beijing and many of the country’s more well-heeled citizens—which means it’s becoming easier to imagine how things could get uglier in China sooner rather than later.

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  • f1b0nacc1

    A very close friend of mine runs a business that places Chinese students in American universities. OK, what they actually do is use their influence to place the little princelings in American schools and shepherd them through the paperwork minefields necessary to do so. The process is very profitable, and business has been booming, as you might guess.
    His observation is that a huge number of these students ‘pursuing their educations’ are essentially pipelines to get money and assets (as well as family members) out of China, and that the individuals wishing to do so are getting increasingly aggressive in their efforts. None of this bodes well for the future of those who don’t have the resources to escape, however….

  • Dhako

    Now, I see some are saying its easy to “imagine” things getting ugly in China rather sooner than later. And yet in America its not even required to “imagine” things getting ugly, since in America with Trump making the head-lines politically; as well as GOP’s effectively saying that the US is in a “lock-down” in-terms of governance till the election in November, will simply tell anyone that a deep crisis of governance as well as lost of political legitimacy in which both Democrats and GOPs view each other mutually, is happening right in front of everyone’s eyes.

    Hence, its rather richly absurd (or comically contemptuous) to see some in America worrying about Chinese economy, while they are knowing full well that it will not take much for China’s effective central government to simply halt any outflow of capital, if its deemed to be an acute problem. However, on the other hand, it will take a “sheer miracle” to see the day in which the Democrats and the GOPs ever agreeing to tackle American’s growing crisis of governance, even if the daily deleterious effects of these politically “metastasizing gridlock” is all around to see even by anyone with a meanest of intellect.

    Consequently, one wonders as to who is having so much of a political and economical troubles of one’s own making, to the point of hoping that others are similarly inflicted at best. And at worse perhaps hoping that other’s internal conditions can afford them a chance to indulge a bit of a “distracting exercise”, particularly in the sense of chin-wagging others “alleged” (or in this case the “imagined”) troubles while remaining in a “see-no-evil-and-hear-no-evil” sort of posture when it comes to dealing with America’s growing internal contradiction. .

    • Tom

      I think your last paragraph is a textbook exercise in projection.

      • Dhako

        No, Tom, for a projection is really on the part of those who are forever hoping and praying (in secular sense) for a doom and a gloom for China. While on the other hand, a momentary and a brief read of the US’s political reality can show them, that its really places like US’s bankrupt cities, cities with a poison waters, rust-belt regions in whose teeming job-less denizens are ready to elect a know-nothing-blowhard, which is genuinely the place that is need of their tender concern.

        Furthermore, you will not see a legions of Chinese strategists wasting the mid-night oil in worrying about the internal politics of US. But, rather, you will see them paying close attention as to the latest move that is the US’s strategical posture, not why the unemployed white-working-classes are politically furious with the US’s Establishment.

        Nor will you see the Chinese spending too much electronic bits (on the internet) on the shenanigans of US’s political and financial oligarchs, such as Koch’s brothers and the rest of these lot in Wall-Street, who effectively bankroll the US’s presidential hopefuls, particularly on the GOP’s side. Now, tell me, Tom, who is projecting their troubles on to others?

        • Tom

          Let’s see.
          You can’t hardly breathe in Beijing for all the smog, your stock market is being closed at random, your warehouses are full of unsold goods, and your government is turning back to Mao.
          Yeah, sure. We’re the ones projecting our problems on to you.

          • Dhako

            And you know the difference, Tom. You see, in China whatever the problems there may be – and there are lots of it, admittedly – they are actively being address by the various layers of governments (from the Local to Provinces to the Central government in Beijing). While on the other hand, back in-the-land-of-the-brave (“allegedly”) in the good old USA, problems like bankrupt cities, poison municipal water supply, and all manner of gutted and boarded up former industrial rust-belt cities are essentially left to their own failing devices.

            And this in turn meant, the right will use those endless tragedies as a indictment of big government and the incompetency of liberal welfare state. Or as Walter Russell Meade had it, as a symptoms of a failing Blue-Model welfare state. And, on the other hand, the left will use those problems, as a indictment of right’s frenzied assault of the welfare state with their tax cut for the rich and deliberate down-sizing of the state.

            Hence, while both side of America’s political spectrum gets their kick out of describing the problems without doing anything materially which could be beneficial to the afflicted localities, in the mean-time the cities like Detroit and the rest of the rust-belt regions go from bad to worse. And the denizens of those places gets ever more miseries and destitute afflictions (like drug-addiction and increasing level of suicide) added to their already precarious lives.

            Consequently, in China, we are not talkers but real doers, even when the problems are as large as they are. While in the US, on the other hand, the tragedy is that, political dysfunction at the highest level of government already ruled out any action of any kind to arrest these mounting problems. Which is why, as China was growing bound and leaps, from 1990s to 2010s, the medium income of Middle Classes US had remained static and flat. And in fact, the average US medium wage earner is much more poorer than he or she was in 1990.

            Subsequently, if I were you, I would not be so glib about the reality of China, when you consider the political chaos and the sheer economical deterioration of US’s economy, in which you have had to deal with. Particularly ever since the right and the left in your country have decided to wage “no-prisoners-taken-all-out-ideological-war”; whereby the nation itself will run the risk of becoming a casualty of that war, as the painful reality of today’s Washington gridlock politics makes it abundantly clear to anyone who could care to look.

          • Tom

            “we are not talkers but real doers, even when the problems are as large as they are.”

            Nonsense, again. The best you can manage is shutting off the power plants when you need to clear out the air for special occasions. Your arable land, which you have precious little of compared to your population, is being used for urbanization and industrialization. Your economy is still utterly dependent on exports, and your government is busy trying to return to some kind of Maoist utopia.
            You may be “real doers,” but you’re doing all the wrong things. You grew because you had nowhere to go but up. Now reap the harvest you’ve sown.

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