CityHallWatch reader HK Howard has tipped us off to this article in the New York Times, with the comment “Vancouver Real Estate ain’t seen nothin’ yet!! I suspect Tuesday’s BC provincial budget will contain a few small sandbags against this tsunami. Watch for Vancouver Specials at $4-5 million and more.” Over the past year companies and individuals have moved nearly $1 trillion (U.S.) from China. Below is a link to the article, with excerpts. Please visit the NYT for the full text.
Chinese Start to Lose Confidence in Their Currency (New York Times, 13-Feb-2016)
- HONG KONG — As the Chinese economy stumbles, wealthy families are increasingly trying to move large sums of money out of the country, worried that the value of the currency will fall and their savings will be worth less.
- To get around the country’s cash controls, individuals are asking friends or family members to carry or transfer out $50,000 apiece, the annual legal limit in China. A group of 100 people can move $5 million overseas.
- The practice is called Smurfing, named after the blue, mushroom-dwelling cartoon characters, and it is part of an exodus of capital that is casting doubt on China’s economic prospects and shaking global markets. Over the last year, companies and individuals have moved nearly $1 trillion from China.
- Some methods are perfectly legal, like investing in real estate elsewhere, buying businesses overseas and paying off debts owed in dollars. Others, like Smurfing, are more dubious, and in certain cases, outright illegal. Chinese customs officials caught a woman last year trying to leave the mainland with $250,000 strapped to her chest and thighs and hidden inside her shoes.
- As the economy stumbles, individuals and companies are pulling money out of China en masse, leaving the government scrambling to limit the outflows. OPEN GRAPHIC
- 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.
- …. For years, China soaked up much of the world’s investment money, as the economy grew at annual rates in the double digits. A largely closed financial system kept China’s own money corralled inside the country.
- Now, with growth slowing, money is gushing out of the country. And the government has a looser grip on the spigot, because China dismantled some currency restrictions to open up its economy in recent years.
- … Ronald Wan, a Hong Kong money manager who is on the boards of numerous state-owned enterprises in mainland China, said that pessimism was becoming the consensus. “Among the companies I have been in contact with,” he said, “all of them have the intention of moving money out of the country.”
- … In this environment, many banks and economists expect another sharp devaluation this spring. But the Chinese government has denounced predictions of any further erosion of the renminbi. The People’s Daily, the state-owned newspaper, in late January criticized George Soros, the billionaire trader known for big currency bets, after he questioned Chinese policies.
A version of this article appears in print on February 14, 2016, on page A8 of the New York edition with the headline: China’s Wealthy Move Money Out as Country’s Economy Weakens.