Wor­ried about yuan drop, Chi­nese for­eign buy­ing binge gives au­thor­i­ties a headache

Wealth man­agers find ways to move money out of China

Kuwait Times - - BUSINESS -

Wealth man­agers like Huang Qing are tor­ment­ing the au­thor­i­ties in Bei­jing. The Chi­nese gov­ern­ment has in­tro­duced a slew of mea­sures to curb cap­i­tal out­flows in re­cent years as it seeks to pre­vent a sud­den plunge in the yuan. They in­clude crack­ing down on un­der­ground banks and sales of for­eign in­sur­ance prod­ucts that are more like in­vest­ments, in­creas­ing scru­tiny of over­seas deals, and keep­ing tight re­stric­tions on for­eign cur­rency pur­chases by in­di­vid­u­als.

Yet Huang says he still finds le­git­i­mate ways to move his clients money over­seas, cre­at­ing a headache for China’s cen­tral bank as it seeks to keep the cur­rency, which is also known as the ren­minbi, rel­a­tively sta­ble. “Over the past year, we have helped many clients al­lo­cate their wealth into US dol­lar as­sets, and the big­gest ob­sta­cle we en­coun­tered was how to move ren­minbi over­seas in a proper, le­gal man­ner,” Huang, Shang­hai man­ager at Cred­itEase, which spe­cial­izes in man­ag­ing money for wealthy Chi­nese in­vestors, re­cently told a fo­rum in Shang­hai.

Cred­itEase, which has been rais­ing money from Chi­nese in­vestors to buy prop­erty as­sets in the United States and Europe, sets an in­vest­ment min­i­mum thresh­old of $150,000, but Bei­jing caps in­di­vid­ual for­eign cur­rency pur­chases at $50,000 a year. “So, we had to use the $50,000 quo­tas from all their fam­ily mem­bers, both old and young, to meet our in­vest­ment thresh­old. This is what we have been beat­ing our brains out to do for our clients over the past year,” said Huang.

It is pay­ing off. Since last April, Cred­itEase has suc­cess­fully raised more than $300 mil­lion from Chi­nese in­vestors for two dol­lar-de­nom­i­nated real es­tate funds, and is now launch­ing a third. It is this kind of ac­tiv­ity that has in­creased de­mand for the dol­lar and pres­sured the Chi­nese cur­rency. The yuan has de­clined to its weak­est lev­els against the dol­lar in six years, touch­ing 6.7869 last Fri­day. Dur­ing the first nine months of this year, in­di­vid­u­als and com­pa­nies made net for­eign ex­change pur­chases of $243.4 bil­lion, ac­cord­ing to China’s forex reg­u­la­tor, though the pace is down from the $465.9 bil­lion recorded in 2015 when a plunge in Chi­nese stock mar­kets un­nerved in­vestors. Mean­while, China’s for­eign cur­rency re­serves have fallen to $3.17 tril­lion at the end of Septem­ber, from a $3.99 tril­lion peak in June 2014, in­di­cat­ing that the Chi­nese gov­ern­ment sold US dol­lars to prop up the yuan’s value.

Big cor­po­rate flows

It’s not only in­di­vid­u­als who have en­gaged in mov­ing their as­sets over­seas. China’s out­ward di­rect in­vest­ment (ODI) surged 71 per­cent dur­ing the first six months of 2016 to $121.4 bil­lion, as Chi­nese com­pa­nies bought as­sets over­seas, ac­cord­ing to the State Ad­min­is­tra­tion of For­eign Ex­change (SAFE). China’s out­bound ac­qui­si­tion boom has been fu­eled by Bei­jing’s strat­egy to de­velop over­seas mar­kets by help­ing to fi­nance in­fra­struc­ture, easy ac­cess to liq­uid­ity in China, and the lower valu­a­tions of many over­seas as­sets when com­pared with those in China, said Sam­son Lam­bert Lo, head of merg­ers and ac­qui­si­tions for UBS in Asia.

Fi­nan­cial in­sti­tu­tions have been us­ing the yuan’s re­cent de­pre­ci­a­tion to push more peo­ple to in­crease their for­eign ex­po­sure. “At­tack is the best form of de­fense,” Chi­nese wealth man­ager Ju­pai Hold­ings Ltd, which had $3.90 bil­lion un­der man­age­ment at the end of June, said in a re­cent ad­ver­tise­ment on the mes­sag­ing app WeChat. “Al­lo­cat­ing US dol­lar as­sets can ef­fec­tively hedge against yuan de­pre­ci­a­tion risks,” the ad said. The Chi­nese gov­ern­ment has been seek­ing to dis­pel con­cerns there will be fur­ther yuan de­pre­ci­a­tion.

Wang Chun­y­ing, a spokes­woman for SAFE, told a news con­fer­ence on Oct 21 that re­cent strong dol­lar pur­chases were driven by sea­sonal fac­tors such as the sum­mer tourism sea­son. The of­fi­cial me­dia has also weighed in. “Yuan’s re­cent de­pre­ci­a­tion against the dol­lar was mainly the re­sult of dol­lar strength ... but it doesn’t mean yuan is en­ter­ing a one-way dep­re­ca­tion path,” the over­seas edi­tion of the Peo­ple’s Daily wrote on Oct 19. The Com­mu­nist Party’s mouth­piece added that the yuan will re­main “ba­si­cally sta­ble” in the mid- to long-term. These sooth­ing words have been ac­com­pa­nies by a series of crack­downs on in­sti­tu­tions that help Chi­nese move money into for­eign as­sets.

China’s big­gest bank card provider UnionPay said last Satur­day it will tighten rules for how main­land cus­tomers can use its debit and credit cards to pur­chase Hong Kong in­sur­ance prod­ucts. In a re­lated move, the coun­try’s in­sur­ance reg­u­la­tor re­cently vis­ited for­eign life in­sur­ance firms in Bei­jing as part of an in­ves­ti­ga­tion into the il­le­gal sale of in­sur­ance prod­ucts in Hong Kong to main­land Chi­nese, the of­fi­cial Shang­hai Se­cu­ri­ties News re­ported on Mon­day. But many in the mar­ket don’t buy such ac­tions and com­men­tary and ex­pect the mar­ket to test Bei­jing’s re­solve.

For ex­am­ple, Shang­hai busi­ness­man Shi Luqun, says he has ac­quired a prop­erty in the United States be­cause he fears the yuan could weaken by at least 15 per­cent against the dol­lar over the next two years. He cites struc­tural prob­lems in the Chi­nese econ­omy - such as overde­pen­dence on real es­tate and ex­ports - as well as the like­li­hood of de­val­u­a­tions by ri­val trad­ing na­tions. A sales ex­ec­u­tive at Yuwo Cap­i­tal, which helps Chi­nese in­vest in or mi­grate to the United States, said it has seen a rise in client en­quiries re­cently, with some bring­ing for­ward their US in­vest­ment plans due to de­pre­ci­a­tion fears. He asked not to be iden­ti­fied.

Huang at Cred­itEase re­called that in 2006, when he was work­ing at a for­eign bank, a client spent an en­tire year con­vert­ing $1 mil­lion into yuan as­sets be­cause of cap­i­tal re­stric­tions at a time when the yuan was ap­pre­ci­at­ing. “To­day, it’s the other way around,” he said. Still, some see a chance to cap­i­tal­ize on the yuan’s weak­ness by in­vest­ing at home. For ex­am­ple, as­set man­ager First Seafront Fund Man­age­ment Co has set up a fund that will bet on Chi­nese ex­porters who will di­rectly ben­e­fit from yuan de­pre­ci­a­tion. — Reuters

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.