Do You Need a Chinese Bank Account?

[Andy J.]

Thought a few of you might enjoy this article on investing in Yuan with Chinese bank accounts:

http://online.wsj.com/article/SB10001424052748704307404576080222812076888.html

[Bryan Hancock]

Yeap...I saw this article a few days back if memory serves. Here is the whole link:

Chinese Bank Account

I for one think China is headed for disaster in the coming years. A managed economy never works and there is massive overbuilding there right now. Selling cheap labor won't last as their standard of living rises.

[Account Closed]

I wouldn't count China out that easily. It is a managed economy but it doesn't take much though to see that they have been opening more doors and new markets.

[Bryan Hancock]

Our local CFA society had an expert on China come in and give a lecture several months ago. I didn't get any confidence that China is going to overtake us any time soon or that there is a need to rush and buy their currency.

The debate about currency comes up every week on this board and we still have had no credible evidence that wild currency swings are imminent IMO.

[Vikram C.]

I agree with Bryan that China is not as stable an economy as one might think, but I also agree with Charles that they are, overall, headed in the right direction and have a good long-term future. An economy that was one of the two wealthiest countries in the world for about 85% of the last two millenia is not one to be ruled out.

One interesting aspect of the way government officials are selected in China is that it is a meritocracy, although it is not a market-determined meritocracy. They have an elaborate point system and people get promoted based on points. This is a bit like selecting our politicians based on SAT scores - very imperfect, but at least you get the smart ones in office instead of the weird politicians that most democracies seem to have.

But I do think they will face several shocks over the next few decades as they transition from a controlled economy to a free market. I also wonder how they will handle the increasing demands by a more affluent and educated public for more personal freedoms. Singapore and S Korea have managed their transitions well so I suspect China also has a chance to pull it off, although it will be harder for them than it was for the more easily manageable countries.

[Account Closed]

On the topic of these Chinese bank accounts, they are not for us, actually.

For us, there is really no need especially the max annual amount you can deposit is only $20k US.... I am not sure its worth ones time to trade currency like this.

I believe that the purpose of these accounts is to facilitate in international growth of Chinese businesses and to aid in foreign direct investment and repatriations.

This is a quote from the China Daily just a few weeks ago:
http://www.chinadaily.com.cn/business/2011-01/14/content_11852118.htm

The People's Bank of China (PBOC), or the central bank, said in a notice on its website that banks and businesses which were allowed to settle cross-border trade in yuan would also be permitted to conduct direct investments overseas using yuan, or Renminbi.

Further, domestic banks could offer those businesses loans for their overseas investment, and investment profits could be sent back to China in yuan. Related procedures would be more expedient, according to the new rules that took effect on January 6.

The significance of this is that its I think the first time that Chinese companies can use RMB to engage in foreign direct investment. Which means if Xinghua Road Property Company from Jiangsu wants to use RMB to buy the every prize property on Manhattan, it can, AND they will also get debt financing at the same time - all in RMB.

In effect the Chinese government will have a hand in every deal. They will control companies through financing (because thats how they do it anyways).

On a lower level, it could be a way for to allow smaller individual foreign investors to invest in Chinese government debt. To give them a taste so to speak. China has recently created these new "offshore RMB" funds which allow foreigners to buy things like Chinese debt. Which - I would posit - is probably not a good investment.

Here is an article that is kindof related:
http://www.ibtimes.com/articles/33687/20100709/analysts-hong-kong-to-be-rmb-offshore-center.htm#

I think the Chinese gov't is trying to create an entire market for the RMB offshore and I think the purpose for this is for them to control the RMB supply and transferability easily.

Did anyone read the Economist article last year about the Chinese Communist Party and Chinese businesses when operating overseas?

The Economist - Being eaten by the dragon -
What it feels like to be bought by a Chinese firm:
http://www.economist.com/node/17460954

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The Chinese Communist Party is really interesting, elite politics in general especially in such a private decision making method. And its amazing what effect their personal interactions have on the entire world!

Of course the Commies are no longer "communists" they are all capitalist of course! China is as communist as any other country because the way that it spreads money is through direct investment into their companies and their economy - same as here in the US what with our state-owned Freddie Mac and Fannie May and Ford, etc. Its all about the same. Furthermore, any redistribution at all goes from the poor to the rich in China. In fact it is very business savvy to want to be a Communist Party member because as an entrepreneur you get a lot of perks. For example, with Party membership it is easier for you to get commercial loans, and permits etc. This is directly related to the very high non performing commercial loan rate in China. China not really a Communist country, but to be clear it is in fact Authoritarian!

The reason why the Party maintains its Communist name is for branding. The second they delegitimize what it means to be a Communist they will have lost power completely - the game is up. It is only through the performance of the Chinese economy that the Party continues to survive. The people no longer accept that they are Communist because they have seen the Party change, and they have seen the rich become richer and the poorer get screwed. That is why it is so scared of any fluctuations in growth and so hesitant to control inflation. A popular Chinese slogan for growth that is somtimes used is that 1 million people are pulled out of poverty every month. However if this is true or not, if the Chinese economy cannot keep up with unrest within its poorest, that is by pulling people out of poverty and into the middle class, then there could be trouble. Any sign of trouble and all the secret police are out.

Within the Party there are a few factions and they are in a constant competition for power through positions held and stuff. Very political and juicy stuff.

China has severe problems especially recently/currently in its real estate market. It is a great opportunity for US investors because many Chinese are unable to purchase homes even for themselves to live in, let alone invest. Compared to China, the US seems like a cheap buy and there are very few people in China who know how to navigate US real estate.

Now, what happens when China continues to revalue their currency? US real estate increasingly becomes cheaper. We should expect increased Chinese investment in the US.