China Imposes New Capital Controls, Targets Foreign Real Estate Purchases, as Yuan Falls to 11-Year Low

“Wiring money overseas is not allowed for the purposes of purchasing real estate or insurance products”: banker in China

China’s State Administration of Foreign Exchange (SAFE) has rolled out a new set of currency controls to crack down on capital flight from China to other countries, particularly targeting real estate investments by Chinese individuals and companies. This new set of currency controls include limits for real estate investors that make raising funds via foreign currency debt nearly impossible and stricter oversight of China’s banks that handles these transactions.

These new rules regarding the banks kick in when SAFE declares the financial situation in China “abnormal,” which would then allow SAFE to crack down on outflows via the banks. But according to the Nikkei Asian Review, SAFE had not revealed what criteria will be used to classify the situation as “abnormal,” and fund transfers overseas locations could be blocked at SAFE’s whim.

When SAFE deems the situation “abnormal,” banks come under greater scrutiny and will be graded on the amount of yuan they wire to other countries and the amount of foreign currency they sell. If they get dinged for too much of this type of activity, SAFE may impose limits on their other banking activities.

In addition, the agency has ordered banks to obtain more documentation before processing fund transfers to other countries. For example, parents wanting to pay for school expenses for their kid in the US must submit an acceptance letter from the US university. For other types of fund transfers to other countries, different types of documents must be presented to the bank, such as work permits.

The idea appears to be to allow Chinese citizens to go overseas and do normal things, such as working or studying, but not invest in foreign real estate.

“Wiring money overseas is not allowed for the purposes of purchasing real estate or insurance products,” a representative at a second-tier Chinese bank told the Nikkei.

Chinese real estate developers investing in foreign real estate projects are confronted with stricter limits on issuing bonds and loans denominated in foreign currency. Issuing foreign currency debt was a favorite way of funding of foreign real estate adventures. Now most of these developers are burdened with heavy loads of foreign currency debts and hamstrung by low credit ratings. The combined foreign-currency debt of those real estate developers was $170 billion in July, based on an estimate cited by the Nikkei.

The declining value of the Chinese yuan against foreign currencies has made it even harder for these companies to service their foreign-currency debts. And the yuan has had quite a ride.

The yuan dropped to 7.17 yuan to the US dollar on Thursday, an 11-year low, before recovering a tad on Friday to 7.15 yuan to the US dollar. Back in 2012 through 2016, when much of this foreign-currency debt was issued, the yuan ranged from 6.1 to 6.4 yuan to the dollar.

The National Development and Reform Commission, cited by the Nikkei, told these real estate developers that they now can only issue foreign-currency-denominated debt with a maturity of one year or less, and only to refinance existing debt, but not to raise new funding. This will essentially prevent these companies that are already overburdened with debt from funding new foreign real estate investments.

China’s foreign exchange balances have been relatively stable — $3.1 trillion in July 2019 — since the panic of 2015-2016 when the reserves plunged by nearly a quarter from $4 trillion to close to $3 trillion, and that capital flight was halted by capital controls put into effect at the time (chart via Trading Economics):

The year 2016 – when a lot of panicked currency controls were being rolled out – was also the year of peak real estate buying by Chinese entities in the US. In terms of home purchases by buyers from China and Hong Kong, they plunged 58% over the past two years to $13.4 billion for the 12-month period through March 2019, according to a recent report by the National Association of Realtors.

In Australia, declining home purchases by Chinese buyers are said to have contributed to the rout in home prices in Sydney and Melbourne.

Similar dynamics have played out in Vancouver, BC. But the BC government has also tried to slow the influx of money from foreign nonresident investors for the past two years via various tax policy changes, and is now trying to lift the covers on money laundering via real estate.

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  109 comments for “China Imposes New Capital Controls, Targets Foreign Real Estate Purchases, as Yuan Falls to 11-Year Low

  1. MCH says:

    It seems like we are reverting back to the old ways of the world where things capital flow are curtailed and monitored. The gradual bifurcation of the world economy also appears to be happening, the only question is how long it will take the process to complete. There is already two distinct internet, China vs non-China.

    I wonder how long it will be before the current order shifts back to something more akin to 1950s era. I am personally looking forward to the D Mark, the Franc, and the Lira making their come back.

    • timbers says:

      “I am personally looking forward to the D Mark, the Franc, and the Lira making their come back.”

      I agree.

      My current thinking is that the only way to stop the imposition of the devastating neoliberal global agenda is to de-globalize, and re-localize government authority and policies.

      Hence everything from the defeat of the TPP trade deal, destruction of NAFTA, Brexit (this does have a very high cost but if it restores British sovereignty it’s still worth it IMO), and the collapse of the EU by individual member nations leaving it, and yes the termination of USD as reserve currency – all very very positive developments against the oppressive Imperialist US Empire and is suffocating neoliberal policies.

      “The more you tighten your grip, the more the star systems will slip through your fingers” – Priness Lia to Governor Tarkin, Star Wars

      • Shawn says:

        I like how you think. The Neo-liberal globalist agenda and the financialization of the world economy is what has got us into this mess in the first place. Would it be so bad, really, to have our money mean something again, like it was before we ditched Bretton Woods on 15 August 1971.

      • Raymond Rogers says:

        Spare me with the “Imperialist US empire” nonsense. You tell me what country, if it had the power, would act any differently?

        Do you live within the borders of the empire?

        • Dave says:

          An unsubtle yet serious inquiry. What would the world look like if it had been the Russians or the Chinese as leaders of the free world?

          This does not excuse the miscues and mistakes of the USA, but it does tend to give a certain perspective on what has been done to date.

      • Lassen says:

        Timbers —- Couldn’t have said it better. Totally agree. Don’t forget about total destruction of West coast real-estate values. Can’t wait till it happens!!!

    • timbers says:

      Oh…and should have added for clarity:

      It’s a good thing IMO that China is devaluating it’s currency if that is what she wants, because including it’s yuan in that index was another neoliberal device for force China to slowing adopt neoliberalism by making China maintain a fixed exchange rate, which The Empire believed could only de done by the usual neoliberal policies that would benefit The Empire but not necessarily China or her people.

      • Winston says:

        The Soviet Union was a totalitarian police state greatly hampered by its economic system. China is an IP thieving, advanced technological, totalitarian police state enabled by capitalism. If and when IT becomes the world hegemon it desires to be, you’ll be wishing for the good old days run by “The Empire.”

        • Tonymike says:

          Why? 600 plus years of wage slavery, colonialism, exploitation, theft, rape, pillage and thus have been a good thing? The demise and downfall of “The Empire” is awaited with enthusiasm by the world. At least in China, the Sacklers would have to worry about execution for their crimes against citizens (killing 42K Americans a year) for the opioid crisis instead of offering a settlement of 10-12 BILLION dollars of their ill gotten gains, to not face a jury.
          You are trying to say the new boss is the same as the old? I don’t think so. Only time will tell.

        • Wisdom Seeker says:

          @Tonymike, China is enabling the Sacklers and shipping us the opioids. There is no difference in that regard. It’s almost payback for the British-American opium trade into China over 100 years ago.

          What is critical is that here in the US you can still criticize the leadership, whereas in China any reporter investigating the ruling families is stripped of rights and credentials. And Xi is now dictator-for-life, so there’s far more chance of bringing down the criminal element in the US elite, than in the Chinese elite.

        • Gandalf says:

          Yes, you’ll get the death penalty if you try to sell narcotics inside China. Selling and shipping fentanyl and other drugs abroad is not illegal. It is payback for the Century of Humiliation (Xi’s phrase) and the Opium Wars (instigated by the British Empire)

        • Gandalf says:

          As for Purdue and the Sacklers, they started the marketing of Oxycontin as “safe” and “nonaddictive” narcotics. The whole family should be taken out to a field and stoned to death by the families of their victims and their billions distributed to those families as Blood Reparations.

          China merely latched onto this existing opioid epidemic and made it more lethal by shipping fentanyl and carfentanyl.

          This is not good capitalist marketing strategy for making billions of dollars, actually, since you don’t want to kill your customers. It’s almost more like the theme from the movie “Kingsman: The Golden Circle” where the goal was to get rid of all drug addicts by killing them all with the drugs they were using

        • Gandalf says:

          One final note: The opioid deaths didn’t escalate until the fentanyl and carfentanyl from China started shipping in mass quantities.

          First responders were keeling over just from accidentally touching dust left on the unconscious victims they were trying to save. Celebrities like Prince died from fentanyl in their drugs.

          Prior to that Oxycontin had been a thriving narcotics industry that made billions and didn’t usually kill people. Lots of celebrities used it – Rush Limbaugh was found to have over 1500 Oxycontins at his home when his housekeeper turned him in

        • JZ says:

          Did you see Boeing’s elite gets prosecuted after their plane kills people? Did you see Epstein bring down elite? Did you see any of those who created 2009 mess go to jail?

        • MCH says:

          Let’s be fair here.

          A bifurcation might actually not be a bad thing. Perhaps one of the biggest mistake that the west, and its neoliberalist policy made was the assumption that democracy is the best thing for the world, and after that, we’ll have unicorns shitting out rainbows.

          The truth is far less palatable. If one gives benefit of the doubt to W, he went into Iraq with the best of intentions, to topple a dictator, to put in place a democracy, and then let it help spread the concept throughout the region. What we witnessed is just how easily that democracy was manipulated, and practically eaten alive by the mullahs, the jihadists and the insurgents. Sure, life under Saddam was no picnic, but I bet there are a ton of Iraqis who now pray things went back to the good ol’ days. And it’s not just limited to the elephants.

          Obama thought the Arab Spring was a fantastic idea, let Google, Twitter, and Facebook help spread democracy throughout the middle east. Then make a deal with the worst actor in the region. Let people have their voice, and where did we end up. More wars, more violence, more instability.

          In hindsight, perhaps the fault isn’t in the effort, but the fundamental assumption.

          The west has been trying to democratize China for a few decades now. I would say, if it had succeeded, it would have been a worse disaster than all the problems in the Middle East combined. Certain systems, certain populations are not set up to enable western democratic ideals. Not saying that it’s not a good system, it works well most of the times. But it isn’t for everyone.

          Just look at the largest democracy in the world, it is a total mess. Corruption and poverty rules the day, and let me tell you about income inequality there.

          So, can anyone really blame China for not wanting western liberal democracy and its attendant track record of problems. While China isn’t a democracy, I would wager that its people are not completely unhappy. Yes, it is balancing on the edge of a knife some times, but if you democratize it, just watch how that’ll go.

          One last thing, China is not manipulating its currency, it is actually removing its manipulative efforts to peg the yuan to the dollar at a certain rate. (yes, it is self serving, but let’s not call it manipulation, because it isn’t)

        • bungee says:

          @anyone who implies that chinese rule is better than what we have in the US:
          no one is claiming western history meets today’s ethical standards. Thats a good thing; it means we’ve gotten somewhere. We are light years ahead of the chinese in imagination (albeit sorely lacking in the discipline department). And yes the dollar needs to fall in order to balance out the world system. But no one wants to live under the chinese government. Think forced abortions. Really think about that one and then guess why china is the only country where more women than men commit suicide (estimates at 500 per DAY). It’s just the tip of the iceberg when it comes to how terrible the CCP is. There is simply no comparison between what the chinese live with and a constitutional republic with term limits on the executive branch.
          The rest of the world WILL rejoice when they’re freed from manipulating their currencies into the floor because of a dollar-centric system. But no one wants to take orders from beijing. And if that is the outcome then G-d help us all.
          Here you actually get taught about “600 plus years of wage slavery, colonialism, exploitation, theft, rape, pillage…” And you can bitch about it online too :-)
          The chinese government has no respect for the individual. China’s people do not have speech protection, free press, gun rights, property rights, respect for their environment, animals or web-sites that disagree with them. They have a social credit score for crying out loud. I live in San Francisco. The chinese don’t immigrate here for the weather. They come here because china sucks.
          And, btw, your money is never going to ‘mean something’ again. That’s exactly what made bretton woods fall apart.

        • Ensign_Nemo says:

          Tonymike, Mexico just seized 25 *tons* of fentanyl en route from China to the USA.

          The Sacklers manufactured opiods that were distributed with illegal prescriptions. The Chinese gangs that make and smuggle fentanyl in 25 ton shipments marked as “calcium chloride” don’t even have that thin veil of legality to hide behind.

          The US is far from perfect, but that doesn’t mean that the Chinese Communist Party, or the triads, are a bunch of saints.

          “A pox on both your houses” is the proper response to the drug crimes of both the Sacklers and the Chinese gangs.

        • Tonymike says:

          @Wisdom Seeker
          Chelsea Manning. Where is she? The whistle blowers of US government abuse of power:jailed.
          Goldman Sachs, Chase, Big Banks, Pharma, For Profit Prisons? NO ONE GOES TO JAIL!!
          This is no more a democracy than what is going on in China. It is a fascist (as in when government and business collude against what is best for the people and unfortunately the trains don’t run on time) oligarchic state.
          Tell the thousands of people who are constantly screwed over by business that having a choice between coke and pepsi is democracy. Yeah right. /s

      • illumined says:

        @timbers – Your assessment is fundamentally incorrect, China has easily been the biggest WINNER from “suffocating Neoliberalism”. Open borders on our side and what was for a while an artificially undervalued currency allowed China to turbocharge it’s economy for a quite a while, leading to a massive offshoring boom. The losers of course were many elements of the American middle class who were impoverished, hence Trump’s election.

        With regards to it’s currency the fixed exchange rate was entirely about what China already thought was best to maintain it’s export advantage. The reason they’ve been defending the Yuan was to stem the tide of capital outflows, the lower it goes the more people want to get their money out of the country. If things in China are really as great as you claim, how come so many people are desperate to leave?

      • Realist says:

        China being the world’s largets importer of oil and raw materials such as copper combined with the total Chinese debt denominated in foreign currencies, I dare to claim that the very last thing the Chinese government want to do is devaluing their currency

    • nick kelly says:

      The lira was a disappearing currency INSIDE Italy before the euro. All real estate was priced in US$. In a familiar sign of impending currency collapse it was being issued in very large denominations: just before the euro a 500, 000 lira note came out.

      There is a whole lot more enthusiasm for a return to the lira in Italy and the drachma in Greece by foreigners with stable currencies than by the citizens of those two countries.
      This drops to near zero with their public sector unions, who do not want to get paid in either.

      The populists in Italy are threatening to print their own currency: not lira but euros. From the viewpoint of the ECB perhaps these would be considered counterfeit. Who knows what steps it could or would take to preserve the value of its own euros. Sure they are all ‘fiat’. The word means ‘command’
      Some commands carry more weight than others.

      A return to the lira is more likely to move the time machine rapidly forward to 2050 than back to 1950.
      Or maybe it would only take 5 years for Italy to collapse. A new lira would very likely not be money outside Italy, it wouldn’t be a convertible currency.

      When the Marxist Greece Minister of Finance (and an expert in Game Theory) was dueling with the Troika, he told them negotiations were off until Greece held its referendum. OK, said the Troika, call us when you’ve done that and then we can release your next loan.
      Holy SH%T! Next day there’s no money in the cash machines. The Red Cross is scrambling to line up insulin that Greece doesn’t make and could never buy with drachmas even it used them. Some suppliers agreed to supply on credit. Swiss giant CIBA: ‘cash’

      A new currency is not going to help Italy. Venezuela has collapsed. How far behind is Argentina?
      They have debauched currencies in common. The old lira had a slow descent. A new lira would be issued in huge amounts and might crash overnight.

      • Tim says:

        Agree with all of that, but Italy does need some sort of solution.

        Since about 1970, Italian competitiveness has deteriorated relative to other European countries, especially Germany. Prior to the EUR, Italy used gradual devaluation to offset this.

        With the EUR, this option doesn’t exist. Neither does the EUR have automatic stabilizers, as function in other single currency areas, i.e. USD, GBP, etc.

        So all that Italy (and others) can do is ‘internal devaluation’, i.e. bolster competitiveness by reducing costs, meaning reducing real wages. This is unsatisfactory, and also impairs demand.

        The fundamental problem is that the EUR combines a single currency and a single monetary policy with a multiplicity of sovereign budgets, hence no automatic stabilizers and a ‘one size fits all’ rate.

        This structure is economic illiteracy.

        One place where you can see the strains is in the Target2 clearing system. Germany is owed EUR 950bn by Target2. This more or less matches the shortfalls of Italy + Spain. Will Germany get paid its EUR 950bn? I wouldn’t bank on it….

        • Petunia says:

          The problem with Italy and the other Euro nations is that they are willingly exporting their jobs to non Euro nations. It’s not just the Euro killing their economies.

          I follow the luxury fashion brands where it matters where a product is made. High fashion Italian brands are now manufacturing in Bulgaria, as an example. In the luxury world price is not as important as cachet. It matters to the buyer where the product is made.

          It’s not just the Italian brands doing this. One French brand is outsourcing to China. The quality is still good, but buyers will no longer pay premium prices for it, and it is now found on sale almost everywhere.

        • Zantetsu says:

          Honest question: would you then say that the USA would operate more effectively with 50 state currencies instead of the single national currency? Then each state could control fiscal policy in ways that make the most sense for that locality versus the ‘one size fits all’ policies we have nationally here.

        • Tim says:


          No, because the US has a single sovereign budget, which enables a single currency to function effectively.

        • nick kelly says:

          ‘Since about 1970, Italian competitiveness has deteriorated relative to other European countries, especially Germany’

          Agree. But why not confront the problem instead of literally papering it over with a depreciating currency? Job One: confronting Italy’s (and Greece’s) bloated, overpaid disfunctional bureaucracy. And when you must print a 500, 000 lira note, isn’t the end game for depreciation already in sight?

      • timbers says:

        Look what happened to Greece. The dracma was seen as worse than the Lira in it’s day, I think (might be wrong on that).

        But would anyone argue that Greece is better of today under EU austerity, than it was when it owned it’s own currency and did not have to obey the neoliberal Eurocrat bank dictators?

        Of course not.

        Same applies to Italy. It faces similar fate as Greece, unless it gets it’s Lira back…with or without it’s faults.

        And too France will face similar fate. They likely all will if they don’t get out of the EU.

        • Frank Smith says:

          The real problem is that these countries for s whole host of reasons are no longer viable, in the end the borders will be redrawn mostly by war.

      • timbers says:

        nick kelly you said:

        “A new currency is not going to help Italy.”

        Incorrect. The events you sited happened exactly because Greece did NOT have a currency, a Drachma. That was it’s mistake.

        It takes about 3 years IT work to create a currency. Other sites have written extensively on this subject.

        Without a currency, you starve and die.

        So for Greece or Italy to leave the EU, the first and foremost MUST CREATE THEIR OWN CURRENCY.

        If they don’t, the EU can and will starve them to death by shutting down their access to the Euro.

        But if Greece had created it’s currency before confronting the EU, today it would free of the EU and more prosperous with a re-created Drachma.

    • raxadian says:

      Only for China.

      We are still war too far away from the times when pulling a “Goldfinger” was a crime.

      And this is more about China fixing the leaks and China going back to be a totalitarian empire than anything else.

    • Dave Chapman says:

      I like the Peseta, and the Escudo.

    • MrILO says:

      Not so quick. Most of Italian sovereign debt is denominated in Euro, therefore returning to our puny Lira with an overnight devaluation of, say, 25% (?) would, likely, bring the country into default. As there are 56 million fellow Italians living here, I’d rather leave the nostalgia of the 50’s to movies, car collecting, and Elvis.

  2. David Hall says:

    In 2008 the Chinese began to build a city that is a partial copy of Manhattan Island (NYC) at Yujiapu. They borrowed heavily. Ten years later the place is a ghost city. There are empty streets, empty stores, street lights, but no traffic. Most cities were built a few buildings at a time and took decades or centuries to build out. How can they foreclose on a city without tenants? Who is printing the renminbis to fund these boondoggles? China is not a democracy.

    • Jonathan Vause says:

      not sure why you’ve focused on yujiapu as there are probably >100 developments of a similar size in China which are currently struggling to attract buyers/tenants to the same extent, if not more so. most fill up eventually and yes plenty lose money – the bad debt is usually hidden by state-owned banks agreeing to roll it over in the hope that the next project is more successful. in most cases these projects are explicitly or implicitly backed by local governments so this can continue as long as local governments are credit-worthy, which ultimately means as long as the central government is credit-worthy. and that’s a very long time, given the central government’s current asset portfolio

    • mark says:

      China is a totalitarian democracy- very much like the USA.

      Our current vulture capitalism is also quite like China’s, minus the Kabuki theatre of our billionaire “elections” . Both countries are completely central planned, with no real “markets”.

    • Iamafan says:

      What’s the difference between these empty cities and Negative Yielding Debt? Think about it hard.

    • raxadian says:

      Did you know Germany has a ghost airport? And that the US is filled with abandoned towns?

      Besides the huge amount of money involved, that’s even bigger than the airport, nothing new to see here.

      • Ed Kennedy says:

        There is a big difference between the abandoned towns in the US and China’s empty cities. In most of the world, towns are built to fill an existing need; e.g. workers for a mine or factory. The towns are slowly abandoned when the need for people there disappears. The mine has run out, or the factory closes due to no need for that product anymore, etc.
        In China, entire cities are built with no existing need for them. This is an extreme waste of money, and the wealthy residents, seeing the amount of totally useless government spending, would prefer to have some of their money out of China. The Chinese government, however, needs that money to stay in the country.
        It makes our messy democratic societies look good by comparison.

  3. d says:

    Capital controls of this nature are a sign of internal administrative failure and serious internal economic difficulties.

    This can be seen by a review of a list of the countries currently employing this financial repression of their citicens

    • a reader says:

      “Capital controls of this nature are a sign of internal administrative failure and serious internal economic difficulties.”

      Precisely so.

  4. Mira Konestabo says:

    This is music to my ears – yes ??
    We have buildings with cracks so long & wide that the building groans in pain.
    External cladding that catches fire via a cigarette butt.
    What better place to invest monies, than to invest them at home – hey !!

    In Australia we need new hospitals, our hospitals are dumps, infected with bacteria of all sorts.
    Hospital management & hierarchy are thieving no accounts, if it is not nailed down it is gone in the blink of an eye, service is almost nonexistent.
    Both federal & state governments feed hundreds of millions of dollars into these inadequate facilities regularly & the money just vanishes.
    Rumors tell how pharmaceutical drugs, paid for wit taxpayer dollars are , instead of being used in the hospital, are syphoned off & sold on the street.

    Governments do not realise that healthcare is a lucrative business., there is big money to be made boys & girls. But not by under servicing & overcharging, but by keeping the population healthy.. i cannot understand why business investment sees healthcare as a charity drive or a raffel when in fact it is big business with big returns.

    Wanted – investors to build & run Australian hospitals.

    Thank you for your website, the work you put into it is phenomenal.

  5. Ramrod says:

    Poor Construction: China’s Cities are Falling Down

    This is NOT a one-off. I have seen a development of perhaps 200 homes near Shanghai that was almost completely empty and falling to bits. It was built only a few years before.

  6. Jas says:

    I wish they would have enforced these “Capital Controls 5 years ago, the housing crisis in many cities could have been avoided or at least dampened!! Is this the proverbial chair that gets yanked out of the game? We shall see..

    • Canada waited until April 20th 2017 but by then the Chinese had already destroyed the Canadian housing market. The falling yuan means their money is worthless outside of China. Hopefully this is the end of China destroying real estate markets around the world.

    • GP says:

      Seems like a desperate measure.

      Btw, how much money from China is still fuelling the RE markets abroad in 2019? Is it still inflating the bubble?

      It would be so awesome if the RE market corrects and people once again can afford to buy houses with their savings.

  7. CoCosAB says:

    Another hole in the bubbly housing market!

  8. Old Dog says:

    Mao Zedong said “Communism is a hammer which we use to crush the enemy.”

    Xi Jinping is a ruthless tactician and will use Mao’s principle to crush Hong Kong and anyone who dares to criticize the communist party. By doing so he will fall in the same trap Mao fell: the isolation of China. That’s the only possible outcome for a party who prioritizes control over everything else. The Chinese communist party would rather let the economy go to hell than losing control of the country. I’m betting that the CCP will succeed at maintaining control but by doing so they will cause the economy to collapse.

    They may blame the West for all their problems but the CCP elite will continue sending their kids to study to the US, Canada, Australia and the UK.

    • Tim says:

      The CCP’s ‘mandate from heaven’ rests on a ‘grand bargain’ between state and people. The people accept restricted rights – in return, the state delivers prosperity.

      If the government fails to go on delivering growing prosperity, it’s in very big trouble.

      More than anything else, the litmus test of prosperity being delivered is urban employment. Marxist theory states that disgruntled peasants don’t make revolutions – disgruntled urban workers do.

      This goes a long way to explain why the Chinese focus is on volume (= activity = jobs) rather than profitability.

      It’s also why doubling GDP since 2008 has been accomplished by almost quadrupling (+280% real) total debt.

    • Nicko2 says:

      China’s too big to fail. They have nearly quadruple the amount of trade with Africa vs. the US, ($61 billion vs. $200 billion); and thanks to the trade war, US was overtaken by Southeast Asia as China’s No. 2 trade partner in the past few months. The pieces are moving….in China’s long term favor.

      • Tim says:

        Is anything really too big to fail?

        At constant 2018 values, here are the numbers:

        2008: RMB 41.4tn 2018: 88.7tn = + 47.3tn = +114%

        2008: RMB 58.8 tn 2018: 228.3tn = +169.5tn = +288%

        To me, this doesn’t look sustainable.

        • MCH says:

          Let’s look at it this way. Can Deutsche Bank be allowed to fail today?

          Before everyone gets all huffy, let’s not assume that western companies and factories leaving China today will mean the end of the road for China.

          I remember in the early 2000s where there were very arrogant execs out of places like Nortel and Ciena that kept saying they never worry about the copycat Chinese companies like Huawei because they’ll always be a generation ahead in technology compared to the mainland companies.

          Today, the refrain is different, but the arrogance is the same. Find a way to put China in its place, so democracy rules the day.

          Then we have the wonderful TV personalities ranting about Tibet and Xinjiang and HK. Most of them don’t even have the historical facts correct. How many of the talking heads realize that the actual problems with the HK extradition treaty originated because of a lack of such treaty between HK and Taiwan allowed a murderer to get away with a slap on the wrist. (I think he ended up with money laundering charges and got 29 months) This murdering sicko could get released in two months.

        • Tim says:

          I don’t think anyone’s being partizan about this – I’m not, anyway – or suggesting that this is the ‘end of the road for China’.

          What some of us ARE pointing out, though, is that China seems to be at a very late stage of a credit-fueled boom.

          Beijing is trying to achieve a ‘soft landing’.

          I wish them luck with that – and I think they’re going to need it.

        • MCH says:


          I agree, China needs a soft landing. The problem is that the west has decided for better or worse, it won’t give it to China. All of the pressure that is coming due to things like HK, from China’s point of view has nothing to do with Democracy, or anything else, it is a way of telling China what to do, and then comes Trump with the trade war. The only goal seems to be to stifle China. Of course, it’s probably not the full intent, but effectively it is.

          Fortunately for China, the timing is not quite that bad because it is too integral a part of the global economy now, even if they wanted to, Western companies can’t divest from China fast enough, and then there is the market that they’d have to give up. If you take the favorite fruit company, Apple would be devastated.

          So, now you get a mexican stand off that nobody benefit from.

      • FluffyGato says:

        When did trade with Africa become the standard by which a country’s economic strength is measured? And 200/61 is much closer to “3” than “4.”

        Factories are moving *out* of China and *in* to SE Asia.

        China is a Potemkin economy with ghost cities littering their landscape. Plus more *idle* steel factories than active US+European factories combined.

        China *does* lead the world in one thing: loading up 3rd world countries with unmanageable levels of debt.

        • NJGeezer says:

          Great rebuttal to Nicko2’s comment.
          You read my thoughts.
          Chinese businessmen with Beijing’s blessing are conspiring with corrupt African politicians to loot African resources, and in so doing plunge the African nations into debt servitude far beyond what the IMF or World Bank could achieve.
          Africans all over the continent will rue the day they got in bed with the Chinese.

    • Iamafan says:

      How much of this sounds like old Western propaganda? What can you do if you have a nation of more than a billion poor peasants? Seems to me China is a miracle considering where they have come from.

      • Nicko2 says:

        China is a good 30 years (at least) ahead of India, and more than twice as wealthy. Actually, I’m not sure India will ever catch up, though they have pockets of hope, but China is a technological juggernaut.

        • IdahoPotato says:

          Correct. Indians are too busy building statues of politicians. Indian university education is a big racket. India will not overtake China in this century.

  9. Tim says:

    It’s not altogether clear (to me anyway) whether this is something that China has done, or is positioning itself to do if “abnormal” circumstances are declared.

    Either way, it’s intriguing. The economy is already decelerating markedly, and the RMB has already fallen.

    So – what are they preparing for?

  10. Charles says:

    My guess is the dollar reserves of China are actually running down way too fast for comfort. There is a $50k per limit annually for each Chinese citizen to send overseas. The fact that a citizen has more restrictions in terms of verifying what the money is used for is telling. I’m guessing there will be plenty of denial of currency purchase from people with not enough documentation. This will increase the desire for the Chinese citizens to get their money out via underground methods.

  11. Iamafan says:

    To the patriotic Chinese: how about selling your investment assets in Canada, USA, London, Australia, etc.; then taking the foreign currency back to China? Wouldn’t that be good for you and your country? You would not be breaking any law by selling and repatriating. The financial world have less to write about.

    • MC01 says:

      HNA Group has been doing just that since late 2017.
      However to paraphrase Ho Chi Minh it was not patriotism that inspired them but bankruptcy.
      HNA went on what can only be called a shop-till-you-drop asset buying spree throughout the world, from Brazil to Switzerland, which included everything from an alarmingly large stake in Deutsche Bank to the trailer leasing arm of GE Capital: it seemed the prophecies of “China buying the world” were coming true.

      We’ll never know what happened but in 2017 either the HNA leadership ran afoul of Chinese authorities or the latter became downright alarmed by the company’s financial conditions. It was leaked (no doubt with authorization from Beijing) that in Q3 2017 HNA Group had a dizzying $94 billion in debts and the costs of servicing that debt had hit $5 billion per year. Simply put it was impossible to keep this up.
      While Chinese authorities are keeping up the farce that HNA Group is “the largest private company in China” (which our media buy unquestioningly) it’s beyond doubt the company is in some sort of undeclared bankruptcy protection scheme or has been stealthly nationalized.

      So far HNA Group has sold $13 billion in assets worldwide, but nobody has any idea where that money is going. If this were a proper bankruptcy or debt restructuring procedure those funds would be fully documented and used to pay down debts and creditors but apparently this isn’t happening, as Airbus keeps on running into troubles to be paid by HNA-owned airlines.
      The big State-owned Chinese banks which are major HNA creditors such as the Industrial and Commercial Bank of China are tight-lipped on the matter despite pressure from shareholders.

      As I’ve said before I suspect there are many HNA’s out there and like the bursting of Japan’s Bubble Economy has shown all the local government will be able to do is to make their demise as painless as possible. People like to think that China is “special” but not even Mao could change the laws of economics.

  12. lisa says:

    Here’s a quote from one of the links from this article- absolutely GREAT:

    “Every city has a few well known families connected to local mobs, that just happen to be in real estate. The impact to home prices are minimal when the volume is low and slow.”

    Now, I really think the first sentence coulda read, and perhaps shoulda read: Every nation has a few well known families connected to local mobs, that just happen to be in real estate.

    I sure can think of a few like really quickly, especially on this side of one of the ponds.


    • Paulo says:

      Lisa’s comment: “Every nation has a few well known families connected to local mobs, that just happen to be in real estate. ”

      Could insert….”connected to local mobs and local Govt and development lobbies”. That addition would help better explain the Vancouver BC RE Industry and other locales.

      In a nearby city to where I live (75 km away) a YVR Hells Angel launders money in RE. It takes a few years, but he slowly redevelops his properties with under-the-table cash. Next thing you know…..? I assume he does this in other towns, but who would ask? One of his past nightclub partners ‘fell’ off her west end apartment balcony. Being a crusader against crooked RE and Money policies is probably not a good health plan. When countries do it with their connected ‘friends’ they use the IMF, weapon sales, and overt threats of war.

      Sometimes it pays off to just watch and wonder.

    • Iamafan says:

      Which of New York’s largest developers (i.e. Tishman, Fisher, Malkin, Resnick, LeFrak, Rose, and Zeckendorf) are the mob?

  13. Paulo says:

    This just came in on the news. Interesting in light of this capital restrictions article and the ZIRP article from yesterday.

    “The economy blew past projections by expanding at an annualized pace of 3.7 per cent in the second quarter, giving Canada its strongest three-month stretch of growth in two years.”

    Bubble burst and all.

    • Tim says:

      You can have pretty much any amount of growth if you can pump in enough debt. That seems applicable to Canada. So yes, bubble and bust.

      • The Canadian election is this October similarly American GDP will hit 4 (four) percent in the third quarter of 2020 with the November 2020 election. All conjured up crap. Remember don’t hold gold next year starting around the start of May 2020 or you’ll get killed. I’m targeting all the way back down to $1,200 even on the nose by the end of September 2020 all based on bogus GDP and unemployment data out of America next year.

    • Nicko2 says:

      Canada not only has a strong domestic economy, is an energy superpower…but is also a safe-haven for the world’s high net worth.

  14. Senecas Cliff says:

    I think one of the reasons ( among many) for the current turmoil in Hong Kong is that the party is cracking down on money transfers through that location. HK was well known as a middle ground where mainland money could be “leaked out” with padded invoices, insurance policies, and fake HK investments. The heavy hand of the party is clamping down on this sort of thing and the HK oligarchs that have been profiting have sent their minions in to the streets to hold it back. But there is no doubt that the flow of mainland money in to RE in the states will be on the downward slide from here on in.

    • Jack says:

      I reckon That should make Wolfie happy!

      As less Chinese oligarchs will be competing with him for a bid on his “new media mogul empire HQ”!

      That is if you discount all those pesky SF billionaires! :)

  15. China is letting out bad news to get a better trade deal. The dealers will mark up the (perceived) risk for buyers. A RE tariff by any other name. Depends on when Trump wants to make the deal. (Just in time for the election?) In the meantime perhaps a good chance to buy the dip while hot US RE markets pullback a bit. (buy the rumor)

    • China doesn’t want any trade deal until they have Trump over a barrel and it looks like he’ll lose the 2020 election because of the trade issue. At that point in time Trump will sign anything with China then lie to the American public telling them America got the better of China when in fact the opposite will be true.

  16. Rcohn says:

    Lets see. If China is making it very difficult to buy overseas real estate ,then demand for foreign real estate will fall dramatically
    Now examine what cities have the largest number of Chinese buyers if real estate; All of Australia, San Francisco, Vancouver, Toronto.
    Watch out below

    • GirlInOC says:

      This was interesting to look at. I filtered search houses in Irvine (with a very large Asian community…over half the residents are of Asian descent, with a huge chunk from China), specifically filtering for “new” and “coming soon” in the 1M dollar and up category. There are 257 results.
      In Newport Beach, with a higher median income level and predominately white, there are 54 new 1M+ homes.
      I know, I know. My fool-proof, highly professional methodology of data mining via using Filter Search on Zillow is highly respectable, completely accurate, and badass. I’m sure this is Wolf’s prefered method of data collecting, being badass and all.


      • GirlInOC says:

        I don’t know what happened to that link. I wish I could post a screenshot of the page. sorry y’all.

  17. Ida Sa says:

    Excellent piece Wolf. It helps one understand, in part, the current dynamics in the US real estate market, despite very low mortgage rates…..

  18. SocalJim says:

    Since the housing market seemed to have survived the $10,000 cap on mortage interes and property tax deduction without much of a scrape, which I found suprising, it will be able to withstand the Chinese capital controls without a scratch. At this point, only a significant recession without inflation will take out the housing market. The housing market is just like the stock market … seems to survive everything bad.

    • Rat Fink says:

      ‘it will be able to withstand the Chinese capital controls without a scratch’

      Do you just make this stuff up or do you think about it?

      If the latter then perhaps you could explain how the market holds up when a huge chunk of buyers no longer shows up.

      Perhaps you could use your massive intellect to explain what/who fills the hole.

    • Rcohn says:

      What are the main drivers of housing price increases in those areas that I mentioned?
      Has it been reduced interest rates ? NO, up until recently mortgage rates were stable
      Has it been rapidly increasing incomes . NO
      The all cash buyer has provided the marginal demand and is the reason for the rapid price increases during the last few years. And where does this all cash buyer come from , mainly China and the Mid/East.
      The fact that China has instituted these new rules on capital will virtually eliminate the all cash buyer in those areas that I mentioned.

    • Senecas Cliff says:

      Wait till the party rounds up the Currency Leakers and Squeezes them to repatriate all the money that flowed overseas for 20 years, no matter what the losses. San Fran and LA will have their RE markets cratered down to Cleveland levels, especially at the high end.

      • Zantetsu says:

        OK that’s a bit extreme. Prices will not go down anywhere near that far. 10% – 15% would be my guess.

    • Zantetsu says:

      That was momentum. The tipping point has passed.

    • Too much supply, too much regulation, no-growth activists, affordability issues, fire insurance gaps. Then you cut off the flow of immigrants while people over 65 already have 1.5 homes, or ten times the sq footage they need. Transfer them to a 20 x 20 assisted living. The only thing that keeps house prices rising is the global monetary base, and the hyperinflated supply of paper assets. As you say that may be enough.

      • RD Blakeslee says:

        ” … people over 65 already have 1.5 homes, or ten times the sq footage they need. Transfer them to a 20 x 20 assisted living.”

        Ambrose, You were born two-thirds of a century too late, in the wrong country.

        You would have done very well in the old Soviet Union’s Politburo, where private property rights were scorned.

    • sc7 says:

      House price gains are at their lowest levels YoY since the trough, with several localized declines, while unemployment is at record lows and rates being 150bp lower YoY, and that’s surviving without a scrape? It’s also riding on momentum, I never expected the cap to take an immediate effect.

      If mortgage rates remained at last year’s rates YoY, the market would be negative nationally. The housing market is going to see it’s death by a thousand cuts. SALT cap? Ding. Chinese money drying up? Dong. An increase in unemployment in a recession should trigger the correction.

    • Rcohn says:

      Ironically the SALT CAP has had NO EFFECT upon many of those people who have high enough incomes to afford houses in places like San Francisco . The reason for this is the ALTERNATIVE MINIMUM calculation. This calculation basically had ALREADY eliminated much of the benefits of deducting state and local taxes

  19. Justme says:

    Speaking of things that cause property prices to fall, there is a strange condition in the mortgage market right now: For the last 7 months (Feb-Aug 2019), the nominal interest rate for ARM/5 mortgages have exceeded the rate for the more conventional FRM/15 rates. After points+fees, the resulting APR spread is even higher.


  20. Train Wreck says:

    Of course, when reading the western press, one will never see new limits on Chinese money flowing into foreign real estate developments as being in anyway connected to America’s war on China being led by its real estate developer President. I can’t possibly imagine any reason at all why Chinese leaders might not want Chinese wealth flowing into the hands of real estate developers.

  21. kswc says:

    I live in Arizona. In January, US Customs seized the largest ever amount of fentanyl, 254 pounds. That wasn’t enough. This week, 26 tons of Chinese fentanyl was seized in Mexico, enough to kill the entire planet. It’s long over due that sovereign nations take care of their own and not chase the globalist dream. When real estate values correct, it will make housing more affordable for locals and that is much healthier for our nation.

  22. chris says:

    This is going to hit the Thai condo market hard. The Russians stopped buying some years ago, so the market shifted to building condos to suit Chinese tastes, and it seemed to be working, for a while. It’s hard to know the real situation, but a trip to any Thai property website shows thousands of condos for sale, with thousands more nearing completion. Another bubble ready to pop.

    • Nicko2 says:

      Such a shame they ruin the once ‘pristine’ coastline with badly designed over-development. Now they’ve moved on to Cambodia, then Vietnam and Laos will be next.

  23. yewtai says:

    China started the trade war against the US in 1994, by weaponising the Yuan with the full approval and support advice from Kissinger.

    In 1994, US$1 = 8.9 Yuan
    In 1993, US$ 1 = 5.5 Yuan
    In 1992, US$ 1 = 4.4 Yuan
    In 1990, US$ 1 = 3.7 Yuan

    The above shows there is a drastic devaluation from 1992 to 1994, which China weaponised the Yuan to be more exports competitive.

    China cannot even compete with the South East Asia countries in 1993 when US$ 1 = 5.5 Yuan.

    After 1994, China become the cheapest labor cost value for money in the world, and caused the Asia Financial crisis 1997-1998. This Asia Financial crisis destroyed economy of South Korea, Taiwan,Thailand, Malaysia and Indonesia.

    Before 1994, most of the global supply chain are from south east asia countries, Taiwan and South Korea. After 1994, when the Yuan is drastically devalued, most of the MNC supply chain moved to China, thus destroyed south east asia , Taiwan and South Korea economy.

    China claim they have the most advanced technology in the world. Then why does China continue to devalue Yuan to be competitive ?

    China cannot even compete with the South East Asia countries in 1993 when US$ 1 = 5.5 Yuan. So can China compete in 2019 at US$ 1 = 5.5 Yuan ?

    China is the biggest global currency manipulator which was approved by Kissinger/IMF/World Bank.

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