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Reasons to Open a Chinese Bank Account
- emptyhanded 16y agoGood rundown in article. We were discussing this last night in the freenode #startups IRC channel ;) The rumor is that the $20K per year investment cap is limited only to individuals and not institutional investors and funds. Furthermore, if there is massive demand, it is expected that those caps will be raised. What is unclear is how your yuan can be used to make investments in China itself?
- joe_the_user 16y agoWhy would the Chinese lift the cap for institutional investors? They would be the ones that would try to use the Yuan at some point. With a 20K cap, it's more like a novelty than a real investment. It seems unlikely the Chinese have a need for many dollars flowing to them. I mean, look how many they have - unless something truly weird is going on...
- dagw 16y agotl;dr version It's very unlikely to go down. It's very likely to go up. You won't miss out on a lot of interest elsewhere, as nowhere else is paying a lot of interest. It will diversify your portfolio. And, finally, it may offer you and your family something of a hedge against the decline of the U.S. economy.
- wheaties 16y agoAh yes, the holy trail of investments. This one, we swear, won't go down! Really, look at all the reasons. Just like housing. It's not like their banks have billions of yuan in loans to companies or government investment vehicles which large numbers of economists question the viability if.
- DenisM 16y agoYour arguments appears to directly contradict your skeptical position. If there are a lot of bad loans on the books of Chinese banks, then the inevitable write offs of these loans will cause massive asset deflation, same as it did in the US in 2008. The result will be currency appreciation, or at least the pressure to appreciate, given the currency peg presently in effect, and holding such currency is appears to be a great idea.
- roc 16y agoIt seems that if the goal is to diversify, there are plenty of other options. That isn't to say that this one is bad, but I'm deeply skeptical of any investment once the press starts running articles about why you should buy into it.
- khafra 16y agoYeah; "diversify for safety by buying this one particular thing we're doing our best to make wildly popular" strikes me as disingenuous advice. "Diversify by holding a portfolio of small, mid, and large-cap domestic and overseas equities, ETFs, bonds, real estate, and other assets in proportion to your risk tolerance and investment horizon" seems to hold up better with a year's hindsight.
- samlevine 16y agoA better investment (for most people) would be in a mutual fund or index that is tied to the Chinese economy.
- maukdaddy 16y agoI cannot upvote you enough on this point. Index/mutual fund is much less risky and provides much better tax benefits, especially if inside an IRA.
- mark_l_watson 16y agoGood advice, I think. Last year I put a year's worth of salary in a good emerging market fund and felt better having diversified. I think for us small investors, diversification for some tiny shred of possible safety is more important right now than maximizing yields. No investment is really safe though - best bet is in producing income in diversified ways.
- cageface 16y agoWhat are some good examples of this?
- beoba 16y agoNot specifically chinese: VGTSX/VTIAX Plus, rather than speculating on a currency, you're actually purchasing a piece of a foreign company's productivity.
- steveplace 16y agoThe least stupid course of action is dollar cost averaging against a global market index but since we're talking about fairly stupid bets such as throwing 4k into the Yuan, then here you go. My bucket: FXI is a China fund EEM is an emerging mkts fund EWS is singapore or you could just assume that the Chinese will want meat so you buy MOO or you can spec on the Yuan directly with CYB.
- alexophile 16y agoOr you can split the difference and look into ETFs comprised of Chinese assets.
- dublinclontarf 16y ago>Politically, the country is under international pressure to rein in its huge trade surplus. The government doesn't feel any of this pressure, as it's not an internal issue they don't care. I would argue that yes the yuan is likely to rise against the dollar, but because of high inflation (very very high in China) most assets would also rise in comparison to the dollar(Oil, Gold, Silver etc.) Actually the only good reason to invest in the yuan I would think is diversification. It's not a good idea to keep your investments as cash during a time of high inflation. In January 2006 Gold was $525, January 2010 it was $1125 Silver, January 2006 $9, 2010 $17, most assets are climbing fast in relation to cash, much faster than 25% over 5 years.
- garply 16y agoIs there much inflation in the US right now? It's really high in the mainland at the moment, particularly with relation to food. My business partner just sold an apartment in Beijing. I tried to convince her to buy up some land back in the US, but she chose to buy another apartment here instead. Part of her concern was that the US housing market was going to be relatively flat for the next couple of years, which is her desired time range for selling the new property. The future potential weakening of the dollar vis-a-vis the RMB also played a role.
- chailatte 16y agoUS Rent prices rose 12% last year http://www.marketwatch.com/story/rent-prices-rose-12-last-year-report-says-2011-01-07 http://www.marketwatch.com/story/rent-prices-rose-12-last-ye... Sugar Prices Hit 30-Year Highs http://online.wsj.com/article/SB10001424052748703506904575591971478795824.html http://online.wsj.com/article/SB1000142405274870350690457559... Gasoline Tops $3 a Gallon for First Time at Christmas http://www.dailyfinance.com/story/3-dollar-gas/19775116/ http://www.dailyfinance.com/story/3-dollar-gas/19775116/ Unless you believe the official US CPI, which excludes food/oil
- yummyfajitas 16y agoCPI doesn't exclude food/oil, only Core CPI does. http://research.stlouisfed.org/fred2/series/CPIAUCSL http://research.stlouisfed.org/fred2/series/CPIAUCSL http://research.stlouisfed.org/fred2/series/CPILFESL http://research.stlouisfed.org/fred2/series/CPILFESL The only major difference between CPI and Core CPI is that CPI is more volatile than Core CPI. This is why, for the purposes of year on year changes, Core CPI is usually reported. If we didn't do this, we'd get headlines like "OMFG, massive inflation, we are all doomed" followed by "OMFG, massive deflation, we are all doomed" 6 months later. Over a period of a year or two, massive inflation x massive deflation = small but stable inflation. A better way to go would be to use moving averages, but that's too complicated to explain to reporters.
- msy 16y agoIt's not a floating currency, it's directly controlled by politicians. Holding yaun is taking a speculative currency bet on the competency of the Chinese Communist Party to successfully manage the Chinese economy.
- meric 16y agoTrust them to do everything they can to keep it growing. People are in China are only generally content with their government because every year everyone gets richer and richer, except the family five blocks down the road that had their house confiscated and compensated only 25% market price because the local council is planning to build a `public facility` on the land.
- msy 16y agoA growing economy does not necessarily correlate to an appreciating currency when its value is decided by political actors.
- MikeCapone 16y agoI expect them to keep activity very high, but I don't expect them to allocate capital well in a way that will result in much profit and sustainable growth. This could last for a while, but IMO it's very unstable and could blow up faster than many expect. Part of my reasons for believing this are stated in this presentation (which has been posted on HN, iirc): http://dl.dropbox.com/u/6010227/Webshare/China%20Japan%20Presentation%20v3%20-%20By%20Vitaliy%20Katsenelson.pdf http://dl.dropbox.com/u/6010227/Webshare/China%20Japan%20Pre...
- fleitz 16y agoSimilar to the United States, except here your house gets seized to build a factory for Pfizer. http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London
- jamesbritt 16y agoHorrendous action, no doubt. But there was an interesting follow-up: "Prior to Kelo only eight states specifically prohibited the use of eminent domain for economic development except to eliminate blight: Arkansas, Florida, Illinois, Kentucky, Maine, Montana, South Carolina and Washington.[30] By July 2007, 42 states had enacted some type of reform legislation in response to the Kelo decision. Of those 42 states, 21 enacted laws that severely inhibited the takings allowed by the Kelo decision, while the rest enacted laws that place some limits on the power of municipalities to invoke eminent domain for economic development. The remaining eight states have not passed laws to limit the power of eminent domain for economic development." (from the same link) I don't think you'll see that in China.
- deleted 16y ago[deleted]
- d4ft 16y agoI am not an economist, but to me arguments 1,2 and therefore 5 seem specious. 3 and 4 hold water, but they are pretty self explanatory. China's economy, to me, seems like a leverage play on the US. If the US economy seriously stagnates, China's economy will follow suit, and likely in a much more dramatic fashion. The opposite is also true, when the US consumers get to spending China (at least for now) stands to benefit tremendously. For me, the best option if you are looking at foreign currencies, is to go buy a brazilian government bond and get 10% on your money in 3-5 years.
- maukdaddy 16y agoMuch like the tech bubble and housing bubble, by the time you read these articles in the mainstream press, it is FAR too late to invest. You've already missed 10-15 years of explosive growth in the Chinese economy.
- beoba 16y agoMeanwhile, http://consumerist.com/2011/01/vegas-atm-dispenses-gold-instead-of-cash.html http://consumerist.com/2011/01/vegas-atm-dispenses-gold-inst...
- EliRivers 16y agoSimply not true. Laughably so. Listen to yourself. You're telling people not to invest because they'll only do well out of it rather than doing very well out of it. People were saying the same thing about gold two years ago and one year ago.
- quanticle 16y agoThe problem with that sort of thinking is that it relies on you being able to time when when market will go from being irrational in one direction to being irrational in another. Lets take the dot-com boom as an example. There were people saying that dot-com companies were overvalued in 1997, when the Asian currency crisis hit. Those people were, in retrospect, probably right. However, the next two years made them look like complete fools, as the bubble maintained exponential growth for another two years before completely collapsing. Same thing with China. Yeah, the bubble might have another couple of years left. If you get in now and get out when the crash hits you'll make a modest profit. But, if you mistime the crash, you could stand to take huge losses, as the value of your currency investments falls far below the price you paid for them.
- MoreMoschops 16y agoYour argument is a non-sequitur. The original argument was that there was no point in investing, because if you'd invested 10-15 years ago, you'd have made a lot of money. That argument is wrong for obvious reasons, which I will spell out anyway; just because something did well in the past is no reason to think you'll lose money on it in the future. Your argument is that if you invest in something and it goes down in value, you lose money. That's true but not relevant. Eli's point seems to be that it's possible to make money on an investment after it's had an explosive growth stage; the obvious truth in counter to the initial falsehood, and in no way addressed by your comment.
- grok2 16y agoI don't understand this...are they giving you a better interest rate? Aren't they simply operating as a US bank (if they are FDIC insured). You really aren't investing in the Yuan...
- sorenbs 16y agosee http://www.bocusa.com/portal/Info?id=649&lang=1& http://www.bocusa.com/portal/Info?id=649&lang=1& Can I buy and sell RMB from/to your bank? Yes, you can exchange USD for RMB or exchange RMB for USD at our bank.
- grok2 16y agoThanks for the link. Didn't realise that they are allowing you to buy the Yuan and the account is actually in Yuan (though you deposit in USD -- conversion at the time of deposit).
- toephu 16y agoalready opened 2 accts. CCB and ICBC.
- juanre 16y agoWhy would China do that? They already have plenty of foreign reserves ($2.85 trillion and growing - enough to buy Spain's GDP two times over), and they seem to be struggling with inflation. I guess the Chinese government is not as sure as the WSJ that the renminbi will appreciate.
- webuiarchitect 16y agoThere is something called 'gold' my friend!
- sethg 16y agoOK, that’s the upside from the depositor’s point of view. What is the upside from the Bank of China’s point of view? Given the massive dollar reserves that the Chinese government has accumulated from its trade surplus, why should they sell off renminbi in exchange for even more dollars? If the RMB/USD exchange rate is almost certain to increase, why would the bank want to give up an appreciating asset in exchange for a depreciating one?
- tricky 16y agoMaybe it is a cheaper way to buy dollars? I couldn't find the interest rates on the accounts anywhere on the site.
- ArturSoler 16y agoFrom the Chinese goverment point of view this is a small step (everything they do is in small steps) towards converting renminbi in a global reserve currency. Their deep reason for that is turning Shanghai in the world's leading financial center.
- patrickgzill 16y agoAll you are buying is a paper promise of yuan. US dollars, devalued as they are, are still the reserve currency of the world and most importantly, oil is still denominated in USD. So basically they can print up as many yuan as they can sell, and exchange paper with pretty pictures on it, for oil and other commodities they can actually use.
- prostoalex 16y ago"But will we start banking in a Chinese bank? It's not as crazy as it sounds." Hasn't HSBC had a fairly significant US/Canada presence for a while?
- Lewisham 16y agoHSBC is headquartered in London, not China, and takes your money in the native currency (USD/GBP/AUD etc), not in yuan.
- 16s 16y agoI know this won't be popular, but the whole idea of "diversification" has always struck me as a lame attempt by rich people (Stock brokers) to get more money from poor people. So I roll my eyes whenever a guy with a Rolex and a Porsche is telling me I need to "diversify"
- grandalf 16y agoLet me try to persuade you otherwise: Imagine average Joe investing in a very non-diversified portfolio of one stock which he has decided he likes, perhaps due to personal knowledge of the firm. Over time, odds are this stock will do poorly compared to if he'd had a more diversified portfolio. It's the same general law of markets that is why it's generally better to invest in index funds... they benefit from overall increases in productivity and economic growth, without being subjected to all the risks that less diversified portfolios suffer from. Of course, it's always possible to formulate a 20/20 hindsight critique of diversification b/c there is always an investment or two that retrospectively looks like it would have been an obvious sure thing to a layperson.
- 16s 16y agoSorry, it didn't work. Diversification means I need to give the stock broker more money. That's all it means to me. I understand the risk aversion concept. You don't need to "educate" me. Telling lay people (as you call them) that they need to do this or bad things will happen is the perfect scam. Create disonance and then offer a solution. "Repent and ye shall be saved." "Diversify and ye shall be saved." I don't buy either argument. I got out of the market in 2000, never been back. Never will. Edit... and yes, I owned index funds, but they wanted me to buy more index funds to further diversify my holdings. I learn quickly. That's always been my problem.
- grandalf 16y agoHow does buying an index fund mean giving a stock broker more money? It's your money, invested. You're certainly free to keep it under your mattress if you prefer. Historically, money invested has drastically outperformed money kept under mattresses :)
- mlapeter 16y agoSpeaking of currencies, I'm wondering if anyone more intelligent than me knows what to make of this: http://research.stlouisfed.org/fred2/graph/?s[1][id]=BASE http://research.stlouisfed.org/fred2/graph/?s[1][id]=BASE To my untrained eyes, it makes the idea of diversifying into anything other than the US dollar seem like a good idea. But to be honest my understanding of the US monetary system gets fuzzier the more I learn about it.
- grandalf 16y agoNot claiming to be more intelligent, but my take on your question is: Just as price is a function of supply and demand, so are exchange rates. The money supply is independent of the price of goods and of the price of currencies (exchange rates). Seemingly, a larger overall quantity of dollars in existence would seem to predict a decline in the value of the dollar relative to other currencies, but the monetary policy decisions that resulted in increased money supply are intended to achieve relative price stability. For example, the dollars introduced to the economy and lent to banks had the effect of encouraging banks to make loans, which helped increase demand for products and services, which helped prevent prices from falling. Also, many of the dollars are being used as reserve capital after the market price of various securities which had been used as reserve capital declined, leaving the entities under-capitalized. All this was done in an attempt to keep interest rates low (in effect a price target) and prevent banks from being forced to stop lending money... So I think the bottom line is that the behavior of consumers and firms can account for so much variability in supply and demand that the money supply can expand greatly and prices can still say roughly constant... the other side of the coin being that monetary policy was used to keep prices relatively stable, in this case by keeping the credit infrastructure status quo alive. edit: Of course, if the Fed gets it wrong or lacks the will to raise interest rates when necessary, hyperinflation can result, which would impact exchange rates.
- maeon3 16y agoThe Yuan is pegged to the US Dollar at around 1 yuan = 0.15 USD cents. A graph of exchange rate for Yuan/USD over time produces a horizontal line. The current president 'Hu Jintau' controls the exchange rate through China's currency policy which dictates how many USD an owner of Yuan can get in exchange. So buying yuan is a bet that the peg will be removed and the USD will be printed so much that nobody will exchange human labor for it. It could work, but I'd buy physical gold before the yuan.
- deleted 16y ago[deleted]
- natnat 16y agoThat's not true. The Chinese government may want to unpeg their currency (1) to give their citizens more purchasing power, (2) because of trade pressures levied by the United States backed up by the threat of tariffs, or (3) because China doesn't want to export to the United States as much. Betting the yuan will rise relative to the dollar is not even remotely close to betting that the dollar will become worthless.
- sagarun 16y agoMay be it is a good idea for american's. I am from india and if i open an account in Chinese bank my phone will be tapped for sure!
- noelchurchill 16y agoLooks to me like China is exporting their currency, to export their inflation, and stem the rising consumer costs in China. And I'm sure they have dreams of being the next reserve currency of the world.
- sabj 16y agoPro-tip: If you're in China, and a Bank of America customer, you can withrdraw money fee-free at the China Construction Bank. Cash may be less convenient than a Bank of China account, but, just saying.
- steveplace 16y agoThis is a friendly reminder that before you throw a ton of money into China, you should probably discuss this with a financial advisor. The WSJ isn't really the best place for advice as they don't know your individual risk tolerance, and listening to advice on a startup-focused forum may not be the best decision either.
- sdizdar 16y agoInvesting in rubles ops.. yuans is very interesting proposition. Especially when inflation rate is skyrocketing and there is housing bubble of enourmous proportion. And China's economy is very much connected to US economy: if dollar collapses and yuans unpeggs, China's economy will suffer. As always, great advice from WSJ: I will have one million dollar in my account in 5 years - if I start with two millions.
- StavrosK 16y agoIn a rather-unrelated matter, does anyone have a Swiss bank account? I'm looking for a bank to open one in but apparently most have a 500k minimum, I just want a personal account...
- deleted 16y ago[deleted]
- klbarry 16y agoI understand there are many successful ways to invest. However, in my life, I've only seen one strategy succeed: you make a profit when you buy, not when you sell. Some people call it value investing, but unless it looks like a stock is undervalued for whatever reason, it's not usually worth investing in. Chinese Yuan, while it may go up, does not seem to be undervalued.
- taiyab 16y agoBetter than relying on the Fed to make the right decisions - "quantitative easing", huh?
- brianobush 16y agoWondering if this is possible with a Japanese bank for Yen denominated accounts.
- bumbledraven 16y agoBuy gold instead, for the same reasons: (1) it's very unlikely to go down; (2) it's very likely to go up; (3) you won't miss out on a lot of interest elsewhere; (4) it diversifies your portfolio; and (5) it's a hedge against the decline of the U.S. economy.