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China Cracks $64B ‘Underground Bank’ Moving Money Abroad
- etaty 11y agoWell that "industry" could start to use cryptocurrencies.
- halviti 11y agoAnyone foolish enough to put 64 billion dollars into cryptocurrencies does not need to be in charge of 64 billion dollars.
- reitanqild 11y agoI'd just assume they move a limited amount at a time and wait for it to be exchanged for "real" money on the other side before they "send" the next transfer.
- iheartmemcache 11y agoYeah. Cryptocurrencies are not on the radar of anyone transacting even a few orders of magnitude less than this. I'm not sure why the Party chose to expose this ring right now but someone up-to-date on PRC politics certainly will be able to fill us in on what triggered this event. Undoubtedly, this has been going on for a long, long time. My friends wife made a ton of money selling "old money" houses to the Chinese-New-Rich in affluent suburbs of New England. I'm sure those on the West Coast heard similar stories re: Vancouver and it's property boom as a result of the same demographic. This is just like any 'raiding the coffers' situation by an incumbent power. A destabilizing event occurs (the fall of the USSR, the laxer economic policies within the PRC, the overthrow of the Shah, the US profiteering off cocaine for arms, etc). The fall of the USSR led to a few, well-connected dozen families getting rich off the oil money to the point of casually buying UK football teams. You can be 100% assured that there will be some scapegoats taking a fall, a fewer number of people in the party will be asked to fall on the sword. I'd bet money that this is just another orchestrated sacrifice to business-as-usual. We'd have to get access to all those MNC-bank records to really figure out how much expatriated yuan left for other markets. For the time being, they'll just effectively tender IOUs until the dust settles[1]. It's been happening since before the modern economies emerged (Dutch coffee shops and Lloyds Underwriting ship insurance is arguably that point). Investment banks still trade amongst themselves in a similar fashion. [1]https://en.wikipedia.org/wiki/Hawala https://en.wikipedia.org/wiki/Hawala
- derefr 11y agoMaybe a TPP side-deal with one of the places the money is being moved to?
- abandonliberty 11y agoYou're right - the yuan trades at a discount in bitcoin.
- Animats 11y agoRight. The main use of Bitcoin is now getting money out of China. That's why the Bitcoin exchanges in China do so much volume. The PBOC cracked down on this once, and Bitcoin fell from over $1000 to $250. Now, as of November 2015, it's apparently possible to do yuan transfers within China to at least one Bitcoin exchange, which is pushing the price back up. There was a brief spike to $500 when that suddenly became possible, but the price dropped rapidly back to $320 or so. Unclear why the PBOC hasn't plugged that hole yet, but they probably will. Bitcoin mining is also a way to get yuan out of China and into another currency. Bitcoin mining doesn't violate China's capital controls; it's considered manufacturing and exporting. That's encouraged in China.
- justincormack 11y agoThe main use of bitcoin in China is getting into the MMM Ponzi scheme,which is a huge fraud. Getting money out of China is done by other means, like $64bn underground banks.
- modeless 11y agoThe combined value of all bitcoins is only $4 billion. It would be impossible for this to happen unless the price of Bitcoin increased something like 100x.
- jsprogrammer 11y agoBitcoin may float to any valuation.
- modeless 11y agoCertainly. And if you believe Bitcoin will become a major way that Chinese evade capital controls, then you should invest in Bitcoin for a 100x return. Clearly the market doesn't currently believe that this will happen or the price would already be much higher.
- xgbi 11y agoWasn't HSBC already included in a massive fraud somewhere else? Should they not be seriously sued for that kind of thing?
- jsprogrammer 11y agoI believe HSBC gained immunity by paying a token fine and promising not to do it again.
- justincormack 11y agoNo the $1.9 billion fine was in relation to specific charges in Mexico, and does not give immunity against anything else.
- jsprogrammer 11y agoDo you have any information about ongoing prosecutions of HSBC?
- peteretep 11y ago> Wasn't HSBC already included in a massive fraud somewhere else? About once a month, it would seem.
- nugget 11y agoWe'll know if/when China is actually successful in stemming capital outflows because we'll see it reflected in real estate prices in tier 1 North American cities.
- TwoBit 11y agoMost of my friends that have tried to buy a house in the San Francisco Peninsula have been outbid by Chinese paying 110%,with cash.
- rgovind 11y agoSomeone posted a link here saying only 10% of houses were sold to chinese investors, meaning not enough to influence the bids.
- nedwin 11y agoAlso from what I'm seeing winning bids in this market are at least 120-130%
- crdb 11y agoIt's a good point that prices in many countries are driven domestically (Australia!), however, I'd add/counter two arguments: - there's a few papers out there (alas, I don't have them) that show that you can go as low as 4% active investors and still have an efficient market (although I'm not sure to what extent this extends to real estate purchases); - even if the Chinese were not to touch real estate and stuck to treasuries, massive demand for treasuries would lower the cost of capital for everything else and therefore drive all asset prices (including and especially real estate) through the roof. FWIW we recently went to visit some houses in Sydney, and 90% of those doing the tours were non-English-speaking Chinese. About half the agents were also Chinese, some with limited English skills. Anecdotes, not data, etc.
- CamperBob2 11y ago10% of transactions is enough to dramatically influence real estate prices. They become comps for subsequent sales.
- gefh 11y agoLimiting capital outflow to $50000 per person seems like an effective way to keep well off people trapped in your country. While there are still millionaires in China who would prefer to live somewhere else, new 'banks' will spring up to help them. Morally this doesn't even belong on the same level as other banking problems around the world.
- justincormack 11y agoWell much of this is the proceeds of corruption, so yes they do want to keep them in the country.
- gefh 11y agoNow I know that this is more of a tax than a ban, the proceeds of corruption bit sounds more likely. No one likes to tell the government about their undeclared income.
- jacquesm 11y agoYou can get the money out, at a %age.
- gefh 11y agoThat sounds more reasonable, do you know the rate?
- jacquesm 11y agohttp://www.bloomberg.com/news/features/2015-11-02/china-s-money-exodus http://www.bloomberg.com/news/features/2015-11-02/china-s-mo... Has it at .1% or thereabouts over the normal banking rates (but normal banks can't do it).
- jacquesm 11y agoThe $50K limit has had some interesting side effects. When I was in the process of selling ww.com I found a buyer, but this buyer then wasn't able to execute because they found that they could not move their capital out of China. In the end it was sold to another Chinese entity, who apparently could get their money out of China, either because of connections, or because they kept their money out of China to begin with (I don't know which). Apparently there is a trick to this where people inside China with lots of US$ will pay a premium to some party that has dollars on the other side of the line. So this $50K maximum has created quite the little black market, probably the opposite of what it intended (capital flight from the Country). But it seems to be 'ok' as long as the right people profit from it.
- imaginenore 11y agoCouldn't you just use bitcoin? Good exchanges exist in China. LocalBitcoin works too, though it's more work to convert $50K.
- jacquesm 11y agoEscrow.com does not use bitcoin because of US anti-money laundering regulations and since that was the chosen escrow party the deal fell through (they insisted on using Escrow.com, not me). The next suitor did work out and they too used Escrow.com so I'm pretty happy with Escrow.com and I'm not sure that I'd trust a party that would flaunt US law to handle deals that size with any reliability. After all, they could have their accounts frozen at any moment. When you're in for the long haul it pays off to play by the book.
- viraptor 11y agoI guess what he meant was why not convert to BTC, then BTC/USD exchange, then non-Chinese bank so they can pay you.
- jacquesm 11y agoWhich non-Chinese bank would that be? The party on the other side would have had to have a bankaccount abroad already and in that case they probably would have held the funds abroad if they could have.
- tim333 11y agoMaybe the time has come for China to move to a freely convertible currency. It seems to work ok for most of the rest of the developed world.
- peteretep 11y ago> It seems to work ok for most of the rest of the developed world It's the getting there that's the problem, and last time a major Asian economy decided to float their currency, didn't work out so well... https://en.wikipedia.org/wiki/1997_Asian_financial_crisis https://en.wikipedia.org/wiki/1997_Asian_financial_crisis
- tim333 11y agoThe Asian financial crisis kicked off because Thailand tried to maintain a fixed exchange rate and then was unable to because too many people were trying to change Bhat into foreign currency and they'd run out so let the Bhat half in value in a panic. Then people who had foreign debt and had counted on changing Bhat to make the repayments couldn't and defaulted. Had they floated a bit earlier before things got hairy they might have been ok.