China’s capital account not so closed after all…

Interesting article on Bloomberg: it appears that the main Chinese Banks have helped individuals to transfer money out of China. It says that this  program/product has been officially approved since 2011, although never publicly announced. What did the Chinese residents do with the money? Answer: they bought  real estate in HK and around the world supporting my thesis that the Chinese credit expansion been the main driver behind higher asset prices globally (of course, this expansion would not be possible without low Fed rates).

What is striking is the naivety of the Bloomberg reporter: she interprets this program as a sign that Chinese authorities are “experimenting” how a freely convertible yuan would look like. How enlightened those Chinese rulers are!

I have another interpretation: the program was legal, but not announced, in order to enable party cronies to transfer money out of the country without arising suspicion internationally about the Chinese growth miracle (who needs to invest in foreign lands if growth back home is so great?) and not to anger the “unwashed masses” in China. The article is silent about whether the banks offered this product to every costumer, or just to the initiated. This would be interesting information.

One piece of evidence, two opinions. What do you think?




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