China Cracks Down on Money Leaking Out of Its Borders (How Will You Cope?)
Investor & Manager · Buena Park, CA · Member since 2013 · 46 posts · 5 votes
This is kind of an old article from August last year: http://www.wsj.com/articles/china-cracks-down-on-m...
http://www.scmp.com/business/banking-finance/artic...
"I Surived Real Estate" video forum talked about its effects with the panels mainly in the first video.
http://www.isurvivedrealestate.com/watch-the-video...
What happens when China finally decides to actually plug up the holes and lock down money from leaving China?
If you knew the 12 month period when China would cut off all capital outflows to the United States, how would adjust your investment strategy to make the most money from the aftermath?
[NOTE: This is not a discussion on if you believe China will never enforce its current $50,000 limit per Chinese citizen. That goes to internal politics of the Chinese government which is beyond the scope of this post. For the sake of simplicity, this is assuming the Chinese government is successful in fully clamping down the outflow, its effects on the US Real Estate market, ways to cope, and ways to profit from such occurrence.]
Hi. I live in Shanghai. My wife is Chinese. Let's do some "anecdotal evidence" chat about this.
Yes there is a 50,000 limit per citizen, but note it's per year, not per lifetime. My understanding is that it's a rolling twelve, not per a calendar year. However...
You can move it to an American relative/friend/trusted soul like uh, me...and so can your spouse, and your father, and your mother and your aunt and your uncle and your neighbor if you're close and trusting...
So, is there a practical limit to home buying? Well, I'd say no. And cash is king in this country.
It's not as clean and easy as it might be, but there is no legal impediment to the action I described.
Probably the best description I've ever heard of the popular understanding of Chinese law is a common saying "The law is the law, and China is China." I think that's roughly equivalent to "It's not illegal if you don't get caught" but that might be a little too clear. Chinese relationships are rarely clear, it seems.
Now, I'm not at all aware of how the high rollers launder their millions through HK, but in terms of smaller (500K or so) purchases, there is no barrier.
To start, look to build a little guanxi (sounds kinda like Gwan Shee) which is among other things, social relationship, social responsibility, serious friendship.
China doesn't have a firm grip on contract law quite yet, so the personal relationship with the other party is still paramount.
Just my two jiao ;) ...and I could be wrong about everything.
I won't mind. I might actually be able to buy something besides a piece of junk in California.
@Lynn Harrison Too funny. Yes indeed.
Bruce Norris put out an interview with Harry Dent (with controversial history of predictions), but does bring up the point about China's bubble that should be popping anytime soon.
http://www.thenorrisgroup.com/blog/news/harry-dent...
I don't think the Chinese are generally over leveraging in the States (mainly paying in cash since banks are still pretty stringent on their underwriting standards), so I think the ones left out will be heavily leveraged investors flipping a home that can't maintain cash flow.
Maybe not government intervention, but maybe the Chinese mainland will just have a huge economic slowdown resulting in no more cash flowing in from China.
There are some parallels to the Japanese bubble, but I'm not too versed enough about this.
Kim, do you think the bubble bursting in China is going to make the outflow dry up a bit? I was wondering exactly which way it would go. Seemed to me it could go either way. And then, possibly it's irrelevant if enough of that money is just being laundered. I don't know, do you have any insight?
And... I don't know if this pertains to you or not, and if so, I am neutral, just want to see price decreases... but I guess a lot of larger investment companies, while American owned are fronted with Chinese money. From what I understand, many Chinese investors' point of view is that it makes no difference if a property makes money or not. It is a convenient place to park money. In fact a lot of the houses stand empty with no intention of renting. In Hong Kong at least, some of them are just rotting. Australia is or has passed legislation to curtail that, as has Hong Kong and Canada- indirectly with audits on their version of EB-5. Canada is probably serious. I don't know if the US is...
Hi. I live in Shanghai. My wife is Chinese. Let's do some "anecdotal evidence" chat about this.
Yes there is a 50,000 limit per citizen, but note it's per year, not per lifetime. My understanding is that it's a rolling twelve, not per a calendar year. However...
You can move it to an American relative/friend/trusted soul like uh, me...and so can your spouse, and your father, and your mother and your aunt and your uncle and your neighbor if you're close and trusting...
So, is there a practical limit to home buying? Well, I'd say no. And cash is king in this country.
It's not as clean and easy as it might be, but there is no legal impediment to the action I described.
Probably the best description I've ever heard of the popular understanding of Chinese law is a common saying "The law is the law, and China is China." I think that's roughly equivalent to "It's not illegal if you don't get caught" but that might be a little too clear. Chinese relationships are rarely clear, it seems.
Now, I'm not at all aware of how the high rollers launder their millions through HK, but in terms of smaller (500K or so) purchases, there is no barrier.
To start, look to build a little guanxi (sounds kinda like Gwan Shee) which is among other things, social relationship, social responsibility, serious friendship.
China doesn't have a firm grip on contract law quite yet, so the personal relationship with the other party is still paramount.
Just my two jiao ;) ...and I could be wrong about everything.
I ran across the issue last week and spent a few nights looking online at articles. Something happened in June and July- I forget exactly what, but there was an aspect of that clamp down that seemed to work. Prices dropped a bit. Now they are going back up. I wonder if a leak was blocked and another popped up.
Kim, do you think the bubble bursting in China is going to make the outflow dry up a bit? I was wondering exactly which way it would go. Seemed to me it could go either way. And then, possibly it's irrelevant if enough of that money is just being laundered. I don't know, do you have any insight?
And... I don't know if this pertains to you or not, and if so, I am neutral, just want to see price decreases... but I guess a lot of larger investment companies, while American owned are fronted with Chinese money. From what I understand, many Chinese investors' point of view is that it makes no difference if a property makes money or not. It is a convenient place to park money. In fact a lot of the houses stand empty with no intention of renting. In Hong Kong at least, some of them are just rotting. Australia is or has passed legislation to curtail that, as has Hong Kong and Canada- indirectly with audits on their version of EB-5. Canada is probably serious. I don't know if the US is...
Definitely will slow down the inflow of cash and stop the super appreciation in many areas (ie. San Francisco & New York City), but I don't know how hard the crash will be afterward due to Chinese propensity to purchase in cash or to have low leverage.
Generally, underwriters are still going by appraisals and conservative LTV ratios, so if a Chinese buyer wants to purchase at higher than appraised values, the Chinese buyer will pay the difference in cash.
The people who will hurt the most are the speculators, but I don't forsee anymore as huge of a crash as I was expecting when I didn't consider how deleveraged Chinese buyers generally are.
At least without Chinese money flowing in, we'll be able to see where the natural, domestic demand would bring real estate pricing.
I imagine some areas of the country, like the midwest, have the least Chinese money affecting their pricing, though it's hard to say how much Chinese money in US investment funds may be affecting pricing overall throughout the US.
"The people who will hurt the most are the speculators, but I don't forsee anymore as huge of a crash as I was expecting when I didn't consider how deleveraged Chinese buyers generally are.'
Thanks. Yes. And on a larger scale, I think the many of the large companies in the US who made money by buying in 2012 have now pulled out and are selling the stock derivatives to the pension plans. Not a good sign...Or.. maybe that was just last year, not this year. Don't know.
Strangely enough there seems to be a huge Chinese investment in Detroit. I think it's tied to EB-5. "Wanna buy a bridge in Brooklyn?"
Actually, I can't think of a better place than Detroit for that money. I don't think it'll cause hyperinflation there...
Jefferson and Kenneth, I'm still reading about the corruption crackdown, and the somewhat recent history of it because it's fascinating to me. It looks like the anticorruption campaign was in full swing in 2013 and there was a lot of talk about tracing assets and plugging holes. However, it looks like this past December was a record with a massive amount of money leaving China. Doesn't look like they made much headway with money leaving.
Macau was shut down but it's reported they are just switching locations to Vietnam and the Philippines.
It also looks like a lot of people are afraid Xi Jinping might be the second coming of Mao... So more people might want to send more money offshore. Do you think they may be able to plug up more holes? Or do they even want to considering most of the anticorruption group are filthy rich as well?
Don't even try to predict Chinese people without having lived here, especially in real estate. I live in Beijing and the real estate market here makes no sense to Americans. The apartment I live in rents for maybe $600 at most. If you bought it, maybe $350k. There is a home worth maybe 1mil down the street that doesn't even have windows. Gated communities of 1.5mil homes with overgrown yards and no off-street parking. Beijing is nearing the occupancy rates of detroit and at the same time housing is basically unaffordable for the vast majority of inhabitants. You see people who bought long ago living in apartments worth half a mil and collecting trash for a living. Someone who was a dirt poor farmer 10 years ago might be worth half a million usd (or more) today due to compensation when the government took his land. Also keep in mind that most residential structures in China are made of concrete and an extremely minimal amount is paid towards maintenance, and the vast majority of Chinese people lack a basic understanding of how western housing is built and maintained. Also not much understanding of inflation.
With many rich Chinese lacking education or knowledge of the outside world, and with how different real estate works in China, you get people doing some things that don't make sense to Americans.
The anticorruption campaign isn't really targetting money going overseas. You get some municipal official of a small city with a dozen rolexes and a million dollars cash sitting in a big pile in a condo under his aunt's name. Seafood was noticeably cheaper last new year due to a decrease in expensive seafood "gifts" to government officials. The people investing overseas are generally more savvy business people who have spent time overseas from what I understand. They are the people bribing the officials (which is not punishable legally), not the people receiving the bribes.
Stopping money from going overseas is more an effort to protect the values of housing in the major cities.