Monday, August 27, 2012

Capital Flight from China?

Dean Booth emails:

I've been looking for signs of increased capital flight out of China, akin to the Pebble Beach and Rockefeller Center buys by Japanese.
Of course, the man in the street there isn't allowed to invest overseas.   Cronies have no such problem.
He then includes this link about Chinese investors buying up a high-end Napa winery. the report then goes on to state that " last week, the Napa Valley Register reported Bialla Vineyards was sold 'to an unidentified Hong Kong buyer for $3.2 million in cash.'"

These certainly aren't Rockefeller Center type numbers, but it is certainly an indication that Chinese, who can, are thinking about investments beyond China--and that's a wise think for Chinese to do, given the crash I see developing in China.


  1. It makes sense for the Chinese to buy hard assets with all those dollars instead of US Treasuries and since we don't make anything that they want, they might as well buy property.

    Once the dollar crashes, the Chinese might end up owning America. Better brush up on your Mandarin.

  2. Several Chinese investors have made big investments in the Milwaukee area, with the understanding that they are paying to play (EB-5 investments). Buell was just revived by Chineses investors, and a brand new Hilton hotel broke ground downtown this summer while hotel occupancy rates have hovered around 60%. There is such a surge in these types of investments that a new financial firm has opened its doors strictly to cater to foreigner with EB-5 investment opportunities. It is becoming a trend...

  3. Robert, as a 6+ year veteran Chinese importer and factory rep, I have found various issues in the reports about China.

    The first issue has been with the claim that so much Chinese growth has come from pork projects. I have no doubt that plenty of pork has been created in China, but whenever I have visited, the only growth I have seen is real growth. I have seen rural towns without a single paved road attract factories that make real things and produce real wealth, after which supporting businesses sprout up like weeds and then along comes paved roads, and after only 5 years I see a horizon filled with new buildings - apartments with people living in them or legitimate businesses – and double-decker freeways jam-packed during rush hour. I see nice hotels and western restaurants filled with foreign visitors and upper-class locals. The people who live there have very high savings rates. I think many upper working-class Chinese have a higher net worth than most middle-class Americans. I understand their economy is heading in a bad direction, as I can see from the ridiculous climbs in raw materials prices despite the slow-down in production, which I suspect is from the central bank lowering interest rates, but I am not convinced that a crash will hurt them the same way a crash will hurt the U.S.

    I don’t see enough pork projects to flatten their economy as so many western economists claim. I am not claiming that they are completely off-base, just that having been there and seen everything first-hand, I’m not clear on how they can become so destroyed.

    This specific article on capital flight from China is indicative of a failure to understand Chinese culture. What remains intact in the social memory of the Chinese is what has happened to previously successful business owners. In the Great Leap Forward, for which we are most familiar with its horrific failures, there were actually some successful factories. Unfortunately, these factories were not successful for very long because they were seized by the Chinese government and the wealth appropriated from the entrepreneurs. This has created tremendous fear in the current class of successful entrepreneurs who have long been moving as many assets as they can out of the reach of the Chinese government without raising too many eyebrows. In fact, if you were to take a look at factories that get fined or shut down for various different infractions and violations, and then compare those factories with ones that don’t get fined or shut down, what you would likely discover is that the biggest difference is how much wealth the factory owner had transferred outside of the reach of the Chinese government, as all of the competing factories are likely in violation (perhaps much more egregiously) than the charged factory.

    So when I read articles like this one, I am highly skeptical that the author or authors properly understand Chinese business owners or Chinese culture in general.

  4. You can't headline an article about capital flight from -China-, and then reveal it's actually an investment from -Hong Kong-. HK is officially part of China, yes. But its citizens and its government are essentially an independently-ruled entity. HKers are not forbidden from overseas investment like the mainland Chinese. This is a very important distinction that the author of the article completely misses, making this non-news.