Sunday, March 6, 2016

Sunday Globe Special: China's Capital Flight

Getting close to the time for me to get out of here, too:

"China’s wealthy move money out as economy slips" by Keith Bradsher New York Times  February 13, 2016

HONG KONG — As the Chinese economy stumbles, wealthy families are increasingly trying to move large sums of money out of the country, worried that the value of the currency will fall and their savings will be worth less.

To get around the country’s cash controls, individuals are asking friends or relatives to carry or transfer out $50,000 apiece, the annual legal limit in China. A group of 100 people can move $5 million overseas.

The practice is called Smurfing, named after the blue, mushroom-dwelling cartoon characters, and it is part of an exodus of capital that is casting doubt on China’s economic prospects and shaking global markets. Over the last year, companies and individuals have moved nearly $1 trillion from China.

Some methods are perfectly legal, like investing in real estate elsewhere, buying businesses overseas, and paying off debts owed in dollars. Others, like Smurfing, are more dubious, and in certain cases, outright illegal. Chinese customs officials caught a woman last year trying to leave the mainland with $250,000 strapped to her chest and thighs and hidden inside her shoes.

If the government cannot keep citizens from rushing to the financial exits, China’s outlook could darken. The swell of outflows is a destabilizing force in China’s slowing economy, threatening to undermine confidence and hurt a banking system struggling to deal with a decadelong lending binge.

What do you do when it has been a century (see Federal Reserve)?

The capital flight is already putting significant pressure on the country’s currency, the renminbi. The government is trying to prevent a free fall in the currency by stepping into the markets and tapping its huge cash hoard to shore up the renminbi. But a deep erosion of those reserves may set off further outflows and create turbulence in the markets.

China is also trying to put the brakes on outflows, by tightening its grip on the country’s links to the global financial system. The government, for example, just started to clamp down on people’s use of bank cards to buy overseas life insurance policies.

Such moves have trade-offs. The limits create concerns that the government is pulling back on reform efforts that China needs to keep growth humming in the decades to come. But the near-term pressure also requires serious attention, given the global shock waves.

“The currency has become a very near-term threat to financial stability,” said Charlene Chu, an economist at Autonomous Research.

Navigating such problems is fairly new for China.

For years, China soaked up much of the world’s investment money, as the economy grew at annual rates in the double digits. A largely closed financial system kept China’s own money corralled inside the country.

Now, with growth slowing, money is gushing out of the country. And the government has a looser grip on the spigot.

“Companies don’t want renminbi and individuals don’t want renminbi,” said Shaun Rein, the founder of the China Market Research Group.

The Chinese central bank is fighting the downward pressure by purchasing large sums of renminbi, selling dollars from its currency reserves to do so. China’s reserves sank to $3.23 trillion in January. A year and a half ago, they stood at $4 trillion.

And the renminbi still faces plenty of headwinds.

See: Chine$e Ponzi $cheme 

The government has been cutting interest rates to stimulate the economy, making it less attractive for savers to keep their money in the country. Corporate profits are shrinking because China has too many spare steel mills, car factories, and empty houses, leading investors to seek better returns elsewhere.

We all knew that was going to happen in this race to the bottom to put profit up top.

Ronald Wan, a Hong Kong money manager who is on the boards of numerous state-owned enterprises in mainland China, said that pessimism was becoming the consensus.

Good to see the Chinese join the rest of the world.

“Among the companies I have been in contact with,” he said, “all of them have the intention of moving money out of the country.”

Companies and sophisticated investors have more freedom to send out money legally for big-ticket purchases and investments. Overseas and domestic companies, which maintain bank accounts in various currencies, can also shift their cash, as well as borrow based on which currency they think will fall in value.

But unofficial methods abound.

The government, though, is trying to cut off some routes.

Two years ago, the government gave permission for insurers to invest 15 percent of their assets overseas, up from 1.5 percent.

But China abruptly told insurers this winter to suspend many of their overseas plans, according to Hong Kong financiers.


That just makes them move the money out faster:

"China’s foreign exchange reserves dwindling rapidly" by Keith Bradsher New York Times  February 19, 2016

HONG KONG — As markets around the world have churned, China has long taken comfort in having what in the financial world amounts to a life preserver: its vast holdings of other countries’ money.

A year and a half ago, China held as much as $4 trillion in foreign exchange reserves. The reserves represented a symbolic trophy for China’s leaders, who have described them as the “blood and sweat” of the workers and upheld them as a sign of national strength.

Now, as China’s economic growth slows, that sign of national strength is slowly ebbing.

China’s foreign exchange reserves are shrinking steadily as money flows out of China and Beijing moves to shore up its currency. The country’s reserves have shrunk by nearly a fifth since summer 2014 — and more than a third of the shrinkage has been in the last three months. By the end of January, reserves stood at $3.23 trillion, a level that has prompted speculation about how much lower Beijing will let them go.

That's because the Chinese are letting them go; they see the dollar is unsustainable and want to at least get some return.

With a smaller pot of reserves, Chinese leaders have less room to maneuver, should the economy undergo a sudden shock. The reserves situation also weakens China’s control over the value of its currency, the renminbi.

The drop in reserves could also hurt China’s efforts to raise its global profile, as it doesn’t have as much money to pump into high-profile projects in developing countries.

This is starting to have the feel of wishful thinking on the part of the NYT!

“If you use up $700 billion of reserves, how much more is going to follow? That is the basic problem,” said Guntram Wolff, director of Bruegel, a nonprofit economic research institute in Brussels.

However much more Wall Street banks need, ya' kidding?

The dwindling reserves are one of the many factors shaking global investor confidence because of the impact the slide could have on China’s financial system. A number of investors are betting that China may have to let its currency depreciate, rather than dip further into its reserves.

That's for whom the NYT speaks.

Chinese officials are fighting back. In a rare interview published last weekend by Caixin, a Chinese magazine, Zhou Xiaochuan, the governor of China’s central bank, said, “China has the largest volume of foreign exchange reserves in the world, and we will not let speculative forces dominate market sentiment.”

China’s reserve hoard is a byproduct of how it manages it currency. During China’s biggest boom years, its currency could have risen in value as huge sums in dollars, euros, and yen flowed into the country. Instead, Beijing tightly controlled the value of the renminbi, buying up much of the inflows and putting them into its reserves instead. That brought angry accusations from the United States and Europe that it was manipulating its currency to help keep Chinese exports inexpensive and competitive in foreign countries.

They do have wonderful artwork, though.

Now that the renminbi faces pressure to fall, China is spending its reserves in an effort to prop up the currency. But many American lawmakers and presidential candidates still accuse China of keeping its currency artificially weak.

The reserves are still considerable, more than double Japan’s, which has the world’s second largest amount. The central bank chief, Zhou, and others have questioned whether the reserves were too big and the money could be better invested if left in the private sector.


Then it is back to bu$ine$$ as u$ual:

"Needham firm settles charges that it made illicit payments" by Beth Healy Globe Staff  February 16, 2016

PTC Inc., a fixture on the Massachusetts high-tech scene for more than 30 years, agreed to pay $28 million to settle federal civil and criminal charges that it made illicit payments to Chinese officials to win business contracts.

The Securities and Exchange Commission on Tuesday said PTC’s Chinese subsidiaries provided government officials with $1.5 million in improper gifts, including guided tours of Honolulu and Los Angeles, golf outings, cellphones, wine, and clothing.

The Needham company agreed to pay the SEC $11.8 million, plus interest, for profits earned on sales contracts with Chinese state-owned entities where officials received improper payments between 2006 and 2011. In addition, PTC’s two China subsidiaries agreed to pay a $14.5 million fine in a non-prosecution agreement with the US Department of Justice.

“PTC failed to stop illicit payments, despite indications of potential corruption by agents working with its Chinese subsidiaries, and the misconduct continued unabated for several years,” said Kara Brockmeyer, chief of the SEC enforcement unit that investigates matters involving the Foreign Corrupt Practices Act.

The company, in a statement, said it has fired the employees who were involved in the case, replaced its leadership team in China, and enhanced its compliance practices. PTC said it was “pleased to have resolved this matter.”

Third-party agents typically arranged overseas sightseeing outings in conjunction with business trips for the Chinese officials, the SEC said. After a day of business activities, the additional days of sightseeing visits “lacked any business purpose,’’ according to the regulator’s findings.

Travel destinations included Boston, New York, Las Vegas, San Diego, and other cities. 

It helped their economies!

No wonder China is collap$ing.

In 2008, the SEC found, six Chinese officials and a PTC-China salesperson visited the company’s Needham headquarters for a one-day meeting. But the trip was extended to 10 days and included tours across the country and lodging in five-star hotels.

At a cost of $51,495, the group was taken on tours of Harvard, MIT, and Faneuil Hall while in Boston; to the Statue of Liberty and a professional basketball game in New York; and on tours of the Grand Canyon and Pearl Harbor on stops to other locations.

In its settlement, the SEC said it considered PTC’s “self-reporting of its misconduct” as well as the “significant remedial acts” the company has since undertaken.

The SEC also said a former employee of one of PTC’s Chinese subsidiaries had provided “significant cooperation” in the investigation. That person, Yu Kai Yuan, will not be subject to any enforcement action for at least three years, the SEC said. The deferred enforcement program requires the person’s ongoing cooperation.

PTC shares were up less than 1 percent, to $28.80 in afternoon trading. The company had previously disclosed that the investigations were underway. 

That's the important thing, the $hare price!


I wonder if they augmented the reality of the stock by inflating it:

"New software could make ordinary objects larger than life" by Hiawatha Bray Globe Staff  February 21, 2016

This is supposed to be the year of virtual reality, as major companies like Facebook Inc. and Sony Corp. introduce 3-D goggles that will deliver a near-total immersion in pure digital fantasy.

See: Zuckerberg Matrix

But engineers at the Needham software company PTC Inc. have no interest in fleeing from the real world. Instead, they want to improve on it, by using smartphones, tablet computers, and video-enabled eyeglasses to project digital images on top of everyday objects.

It’s called “augmented reality,” or AR. And PTC, which makes product-design software used by many of the world’s biggest companies, wants to help manufacturers build AR into millions of commonplace items, from factory equipment to cars to home appliances.

AR “converges and melds together the digital and physical worlds into a single unified visual experience,” said PTC’s chief executive, James Heppelmann, at the company’s AR conference in Boston last month.

In an AR-saturated world, a maintenance worker in a factory, wearing a pair of video-enabled goggles, might see an electric motor glowing bright red and know that it needs replacing. A warehouse worker would know which package to ship next, because the correct shelf pulses with blue light. A surgeon could see a patient’s MRI scan superimposed on his body during surgery, to ensure that the doctor knows exactly where the tumor is.

While virtual reality is mostly about entertainment, AR’s applications are just about limitless.

“In the near term, virtual reality will get most of the attention and the early traction,” said Tom Mainelli, a display technology analyst at the Framingham research firm IDC Corp. “Longer term, augmented reality ends up being a much larger market.”

How large? The British research firm CCS Insight reckons AR systems generated $300 million in revenue last year but will rake in $3.6 billion by 2018.

Consumer versions of AR have been around for years. Bumble Bee Foods LLC created an app that fills a smartphone’s screen with recipe information when a customer points the phone’s camera at a can of Bumble Bee Tuna. Toymakers like Lego Group and Mattel Inc. offer AR-enabled apps that display animated images alongside a child’s real-world playthings.

Many AR apps are based on software from Vuforia, formerly owned by the cellphone chip maker Qualcomm Corp. Late last year, PTC paid $65 million to acquire Vuforia, in a bid to integrate AR features into products designed with PTC’s engineering software.

“While augmented reality is already transforming the way we play, it’s about to completely disrupt the way we work,” Heppelmann said....

If you are lucky enough to have a job.


It's going to be another tidal wave of data.

NDUs: China’s economic czar doesn’t expect a slowdown 

They have a czar now. I thought czars were Russian, but I guess they are both Communist so why quibble? 

China may lay off as many as 6M workers

Time to take flight again.