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China's Money Exodus
- ageofwant 11y agoHere in Sydney and Melbourne, 1/4 of all apartments are sold to Chinese, even Chinese government owned corporations. http://www.abc.net.au/news/2015-10-12/selling-the-australian-property-dream-to-china/6841810 http://www.abc.net.au/news/2015-10-12/selling-the-australian...
- contingencies 11y agoTo be fair, recent mainland Chinese immigration has enlivened a lot of otherwise dead areas of Sydney, and I'd wager Melbourne. Places that were ghostly failed malls are now thrumming 24 hour apartment-ringed nexus for food and entertainment. (Eg. Chatswood.) A similar transformation has permanently improved central Auckland. Smiles from China, where I now choose to live ... a Sydney native.
- shostack 11y agoOut of curiosity, where are all the jobs supporting the people now living there? Are they commuting to more urban areas?
- ageofwant 11y agoMostly investment properties as far as I can tell, renting to students, singles, that kind of thing. So fairly mobile renters, they commute to where they need to be.
- ageofwant 11y agoOh not saying its bad at all. Investment is good. Just a comment on what seems to be a global trend.
- ori_b 11y agoI don't think that people here are complaining about immigration, so much as absentee landlords.
- ajtaylor 11y agoI worked in Chatswood for 4 years and the amount of development that went up (or finished) was incredible! Right around the Chatswood station there are 3 or 4 new high rise apartment buildings. All the new shops that opened up were a boon for lunch time offerings :)
- narrator 11y agoThis is the "Great Blowing Sound". Ross Perot's "great sucking sound" in reverse. All that money we sent out the trade deficit is flooding back in to real assets in the U.S and elsewhere in the western world.
- roel_v 11y agoIt's illegal in Australia for foreigners to buy existing homes though, so what they buy are off-the-plan units, and (from what I can tell) significantly (double-digit percentages) overpriced compared to existing stock, or even smaller developments that don't cater to foreigners as explicitly. Many of them seem to be bought to rent out, with the idea of living in them 'occasionally' or 'sometime'. I wonder how many of these investments make financial sense. (then again, just for portfolio diversification it's worth even paying for, maybe that's where the price excess comes from). It's an interesting economic dynamic, in-explainable with orthodox theory, it's really about the circumstances. Which makes it difficult to analyze and model, too.
- Steko 11y agoApparently it's 'money flooding out of country x' week at Bloomberg: https://news.ycombinator.com/item?id=10498040 https://news.ycombinator.com/item?id=10498040
- toomuchtodo 11y agoI believe that's what they call "economic contagion". Capital is trying to find safe returns somewhere, anywhere.
- landryraccoon 11y agoIt's a shame property taxes aren't higher. It would be a free ride from the perspective of domestic tax payers. If one wanted to be protectionist, the increased taxes could be set to only apply to non owner-occupied residences.
- seanmcdirmid 11y agoChongqing and Shanghai have tried this (applied property taxes to 2nd houses for luxury properties). But that is easily gained by simply throwing in a Smurf or two (put the house in a family member's name). Any system with rules that can be gamed is not going to work in China. The only solution is a tax on all property.
- PakG1 11y agoAny system with rules that can be gamed is not going to work in China. Case in point: http://world.time.com/2013/04/29/why-chinese-couples-are-divorcing-before-buying-a-home/ http://world.time.com/2013/04/29/why-chinese-couples-are-div...
- nugget 11y agoSome states in the US do have high property taxes. Texas, for example, hovers around 3%, and it's generally a much healthier fiscal environment for residents than states with lower property taxes (and higher income taxes), such as California.
- seanmcdirmid 11y agoProperty taxes encourage good behavior in making people use their property productively. With property taxes, you just can't sit on property as a form of speculation, which would take it out of use to the detriment of the local economy. In china, even in first tier cities, you have a huge number of apartments that are unoccupied because they are bought for speculation reasons alone. China has a huge problem, however, in that property was bought already with upfront taxes and the assumption of no property taxes. Introducing a property tax now is going to make those people mad, understandably.
- lifeisstillgood 11y agoWhere would you like your money - in a country with tight capital controls, an unstable political hierarchy, unclear or unreliable economic data and lack of "institutions" or ... China :-)
- sharetea 11y agoSome relevant links: "(Chinese bank's) nonperforming loans may be at 20 percent to 21 percent, or even higher." http://www.bloomberg.com/news/articles/2015-10-29/risky-math-how-analysts-calculate-china-s-true-bad-loan-burden http://www.bloomberg.com/news/articles/2015-10-29/risky-math... "by 2018 all of China's excess reserves — cash that it has on hand to use immediately — could be gone." http://www.businessinsider.com/chinas-record-capital-outflows http://www.businessinsider.com/chinas-record-capital-outflow... "China’s 42.2 trillion yuan (US$6.7 trillion) bond market is flashing the same danger signs that triggered a tumble in stocks four months ago" http://www.thestar.com.my/Business/Business-News/2015/10/10/If-you-think-Chinas-equity-bubble-is-scary-check-out-bonds/?style=biz http://www.thestar.com.my/Business/Business-News/2015/10/10/...
- narrator 11y agoHow long has this "China is about to crash" story been in the news? It's been around for at least 10 years. There's an article almost every month. I should write a big FAQ about why the Chinese financial system doesn't follow western financial system rules and link to it whenever these articles come up.
- seanmcdirmid 11y agoThe economy can remain insane longer than you can remain solvent. You can claim that the Chinese financial system is immune to economic cycles and that the law of gravity doesn't apply. But we've heard that before about American real estate, where people were saying "how long has this real estate is about to crash story been in the news?" in 2007... If everyone around you is talking about how to get money out of China, then something might be up.
- narrator 11y ago>You can claim that the Chinese financial system is immune to economic cycles and that the law of gravity doesn't apply. That right there is the fundamental flaw in your thinking. You think boom and bust is physics. It's not. (Here we go again, for like the 50th time explaining how this stuff works) It's a direct consequence of the fractional reserve banking model that sticks the taxpayer with the bailout. In China, the government just prints the money electronically. They've had trillions in bad loans in the banking system forever and the Chinese gov periodically goes and cleans it up with printed money and shoots a few misbehaving bankers. In the west, we make the taxpayer and savers pay 100 cents on the dollar on the bad loans and transfer wealth from them to the bankers. We also take everyone's property and give it back to the bankers while China just lets all the bad loans sit in default forever without any action being taken. They even periodically let big investment funds default and it doesn't crash the financial system because the reverse money multiplier doesn't kick in like it does in the west because the gov just comes in and prints the money, hands it to the banks and they keep lending.
- Jerry2 11y agoMoney's also flooding out of Canada: >Money Flooding Out of Canada at Fastest Pace in Developed World http://www.bloomberg.com/news/articles/2015-11-02/money-flooding-out-of-canada-at-fastest-pace-in-developed-world http://www.bloomberg.com/news/articles/2015-11-02/money-floo...
- beachstartup 11y agomight be related. a lot of money has flooded into canada because of the chinese. see: real estate.
- toomuchtodo 11y agoWhile at the same time, money is flowing out of Canada due to the collapse in oil prices.
- adventured 11y agoThis is due to the dollar. It's not a coincidence it's all happening simultaneously globally. For the same reason, every GDP on earth simultaneously skyrocketed (priced in dollars) as the dollar lost value in 2002/03, as the US Government began running large budget deficits under Bush. It's causing the mess in China to get worse, by pulling capital out of China more rapidly. It crashed Brazil (check out when their unemployment began to soar, exactly when the dollar run began [1]). It crashed Canada and also hit Australia hard. It caused Russia to lose 1/3 of its economy, and is bleeding off their reserves and emergency fund; and the worst isn't over yet. The strong dollar ended the USSR by tanking the price of oil, and caused their crisis in 1998 as well. The same thing happened in Asia in the late 1990s, when the strong dollar crashed numerous economies there. This time is worse in terms of sheer damage, as those Asian economies are far larger today (as are Canada, Australia, Russia and Brazil). Every day the dollar remains strong, things will get better for the US and worse for almost everyone else. It has already pulled trillions in capital back to the US, and has boosted real US annual purchasing power by at least $2 trillion in just 18 months. The US has gone from #9 or #10 in the world in GDP per capita in 2014, to #5 on the IMF's projections for 2015, due to the dollar. [1] http://i.imgur.com/MCsEaOb.png http://i.imgur.com/MCsEaOb.png
- shostack 11y agoIt seems like the media has been trying to will a crash in global markets to happen with the amount they've been going on about this. How biased are their opinions and what do more neutral experts say about the direction the global economy is heading? Honest question as I am not an expert.
- seanmcdirmid 11y agoThey are reporting facts, really it is as simple as that. People are moving money out of China (I'm one of them), confidence in the economy is not good even if the government says everything is completely spiffy. Bloomberg doesn't have to make anything up to talk about how people are moving money out of China, they just need to follow the money. And if the money is flowing one way, it is completely reasonable to speculate on "why" that is so, and I think it is obvious (confidence is low, better investment opportunities exist abroad then what can be done with the money at home).
- shostack 11y agoThanks for the clear and logical explanation. I find it hard to trust the news in this day and age so always interested in other opinions on the biases of the publisher itself.
- AnimalMuppet 11y agoBloomberg tends to be pretty good on this kind of story. If they say the money is moving, they are almost certainly right. If they say how much is moving, they are probably somewhere in the neighborhood. If they say how it's moving, it's probably moving in at least those ways. If they say why it's moving, their guess is as good as anybody else's, and maybe better.
- seanmcdirmid 11y agoIf you really want bias with out facts, try reading Chinadaily: http://www.chinadaily.com.cn/china/2015cpcplenarysession/2015-11/04/content_22363174.htm http://www.chinadaily.com.cn/china/2015cpcplenarysession/201... They just flat out tell you "China will keep to a growth rate of 6.5% no matter what". All is well because...they promise.
- gscott 11y agoGood thing China has all of those Treasury Bonds to sell.
- markdown 11y agoFijian here. As of a year ago, foreigners are no longer permitted to buy residential properties within town boundaries. Outside of town boundaries, they can buy residential property but must build on it within 2 years, spending at least USD$125k on the home. Failure to do so attracts a penalty of 20%(off the top of my head) of the value of the property annually. The chinese were just buying up too much property and locals couldn't compete.
- mahyarm 11y agoThat money exodus has been happening for a decade from Vancouver's perspective. Maybe it's just accelerating now.
- elchief 11y agoAnd our neighborhoods are emptying out...
- fspeech 11y agoWhy is it called an exodus? Other than the central bank selling dollars, for every yuan that is sold there is a buyer on the other side. Let me try a different narrative that could be equally valid: as the oil price has halved the Chinese are getting a subsidy of 150 billion dollars a year. Coupled with other commodity windfalls, the regular trade surplus, and a domestic slow down that reduces the potential return on domestic investments, they have cash busrting their wallets and must seek alternatives. Overseas investment (a.k.a. the money exodus) is the only way to keep the accounting identity true.
- seanmcdirmid 11y agoThe money is leaving the Chinese economy to be invested in other economies, hence an exodus. One could say that the money could always come back when the Chinese economy provides more opportunities. Or those rich people could just emigrate completely, leaving China behind.
- fspeech 11y agoThere are only a few currencies (USD and maybe Euro) that circulate outside of the issuing country on a significant scale, but even for the USD the amount of cash outside of the country is puny compared to the worldwide dollar holdings. So strictly speaking money never leaves. It is easier to get the concept right to instead say that you now prefer to use the USD as the accounting unit for your assets. EDIT: To clarify: "cash" refers to paper currency and coins; "dollar holdings" refers to dollar denominated assets.
- seanmcdirmid 11y agoIf I change RMB to USD and then buy a house in the states, the money has left. If I just leave it in a bank in China, you are technically correct. If I transfer the money to a US account, China now has to transfer some of its dollar reserves to that bank. No one is changing RMB to USD and just keeping that in China, you don't even get interest on that.
- colordrops 11y agoOf note is that the recent rise in price of Bitcoin is in a large part due to this outflow of money from China. This article totally left that channel out.