New Open Door Policy
Bloomberg reports China Is Throwing Open Its Market Door. Be Wary.
China’s latest welcome to foreigners smells of desperation.
Global funds no longer need quotas to buy Chinese stocks and bonds, the State Administration of Foreign Exchange said in a statement Tuesday. That removes a hurdle to foreign investment that’s been in place for almost two decades, since the nation first allowed access to its capital markets.
Scrapping the quota is less a confident liberalization by a maturing economy and financial system than an overt admission that the country needs money. China has been edging dangerously close to twin deficits in its fiscal and current accounts. It needs as much foreign capital as it can get — even in the form of hot portfolio flows — to keep control over the balance of payments and avoid a further buildup of debt.
This thirst for overseas funds explains why China has been opening its financial services industry, allowing global investment banks to take majority control of their local brokerage joint ventures after years of resistance. The question now is whether foreigners will take the bait.
Michael Pettis on FDI Quota Scrapping
Pettis Questions Current Account Thesis
Bonds Not Tempting
Chinese bonds yield almost 1.5 percentage points more than US bonds.
Tempted?
Yuan vs US Dollar 1981-2019
Yuan chart from MacroTrends. Anecdotes mine.
If the yuan was strengthening, an extra 1.5% per year might be tempting.
However, the yuan has weakened 18% since January 2014.
Stability Not
Nothing about any of these actions suggests more stability. It’s all about preventing a stock market collapse while praying for a miracle.
Mike “Mish” Shedlock
The ten year return on the Shanghai index is….. precisely zero. Why would I buy now?
The cynic might think that the CCP will do anything necessary to continue exploiting the useful capitalist idiots who rescued them from Mao suits, great leaps forward and cultural revolutions.
Wish I could be a fly on the wall as they debate what to do next. At some point, you know they’re asking, “Why don’t we do whatever’s required to suck in capital? If things go against us, we can pick a new chairman, declare ourselves victims of capitalist exploitation and default. Hell, Argentina has done this eight times and the idiots are still clamoring to loan her money.”
Mish: how much of this is the Chinese government wanting to attract more foreign capital, and how much of it is smart money hoping to sell their Chinese assets for foreign currency?
If “Wealthy Joe China” is worried about Xi becoming more and more of a dictator, and worried the CCCP will nationalize wealth and/or disappear wealthy persons, they need to get as much money out as possible.
Smuggling diamonds through Maacau is now a well known tactic that the authorities are on the watch for.
Buying real estate in Vancouver and US west coast now involves onerous restrictions on top of “surplus” taxes, as local residents resent being priced out of their own market by money launderers.
Transfer pricing and export invoice fudging is another well discussed tactic that the authorities are on the lookout for.
There will always be ways to smuggle a moderate amount of money out of China, but for the wealthy Chinese who need to move seven plus figures, the CCCP is closing the net fast.
Chinese bureaucrats are among those who profited in gray markets and need to get money somewhere it won’t be confiscated. Ergo they pushed to ease restrictions too.
I thought that the US needed China and that China was so strong that they were not even impacted by US tariffs? Is this not the case?
A country that can’t feed it’s own population, is number one in both ocean and air pollution isn’t the future we should look to.
China needs to clean up the environmental problems they are creating. Until then, China will remain just another 3rd world tyrannical state.
Amazing to see that there are so many china experts on this board! The chorus of “China collapsing” has been sung one wave after another over the last 20 years, ever since the publication of Gordon Chang’s “The upcoming collapse of China”. But what has been actually collapsing is the reputation of those chorus singers. Lol
There are two countries I wouldn’t bet against. One is China, the other is the US. I’ll believe a China collapse the day I see it reported in the news.
Not expecting a collapse.
Just a major devaluation.
Which may lead to collapse in stock market.
“There is no greater danger than underestimating your opponent.”
― Lao Tzu
I look at all the Chinese citizens jumping through hoops to get their money and their families out of China while they can.
I figure the people on the ground living through the chaos know than the cloistered politicians who travel in armored cars with police escorts and have everything including their grocery shopping done for them by personal assistants.
I also think the people on the ground know more than the “expert” talking heads on TV who told us that Dewey defeated Truman, and that Hillary isn’t a crook.
To say that China overbuilt is an understatement. On top of all those debts that can’t and won’t be paid, you have a problem where there are way too many boys that were born.
China has been a paper tiger for a long time.
Knock on is commodities (Australia etc – 30% of exports to China?) and Germany/Eu/UK (cars).
Will go full circle and ultimately be felt in US downturn after some delay. Overall deflationary. What will CBs do to compensate? 3 guesses, 2 answers, lower rates & devaluations.
$ gets stronger etc.
One big boomerang. All coupled.
I can’t see commodities being affected any time soon at least as far as Australian exports go. China is still only 60% urbanised. That means lots and lots of iron ore still heading China’s way, not to mention gold, LNG, lithium etc. Thermal coal is I suppose the exception. I don’t know the current situation with power generation over there, but I guess even if they are still dependent on coal powered electricity they’ll be trying to phase it out as soon as possible.
The average wage in China is $200 a MONTH,so the billion plus Chinese can’t afford to buy well……anything,with forces them to depend solely on exports (or money printing)to drive there economy. There only real customer ,Americans are too flat ass broke and in dept ,completely dependent on big govt for a check to buy anything period….so who gonna buy all their shoddy Chinese junk?
Ah explanation by tweet. Here is another view:
https://www.chinabusinessreview.com/is-china-really-opening-its-doors-to-foreign-investment/
Typical emerging market, twin fiscal and current account deficits, desparately looking for foreigners to buy up domestic assets …
Are we talking about China or about the USA?
Doesn’t really matter. Either one has a central bank and a totalitarian government. Hence is nothing more than a racket for robbing the productive, for the benefit of the idle, clueless connected. China is earlier in the cycle of inevitable decay, but that’s about it, as far as meaningful economic differences are concerned.
“China’s latest welcome to foreigners smells of desperation.”
…
Absolutely.
Never bought any of their tough guy act … and how Xi would just sit back and wait to deal with next Administration. Though population growth slowing China still added 15 million people last year. Their employment / population is 65%. That is 10 million NEW jobs … A YEAR … they need to create.
They are desperate. Much more so than US.