
China Cracks $64B ‘Underground Bank’ Moving Money Abroad - jackgavigan
http://www.bloomberg.com/news/articles/2015-11-20/china-cracks-64-billion-underground-bank-moving-money-abroad
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jacquesm
The $50K limit has had some interesting side effects. When I was in the
process of selling ww.com I found a buyer, but this buyer then wasn't able to
execute because they found that they could not move their capital out of
China. In the end it was sold to _another_ Chinese entity, who apparently
could get their money out of China, either because of connections, or because
they kept their money out of China to begin with (I don't know which).

Apparently there is a trick to this where people inside China with lots of US$
will pay a premium to some party that has dollars on the other side of the
line. So this $50K maximum has created quite the little black market, probably
the opposite of what it intended (capital flight from the Country). But it
seems to be 'ok' as long as the right people profit from it.

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imaginenore
Couldn't you just use bitcoin? Good exchanges exist in China. LocalBitcoin
works too, though it's more work to convert $50K.

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jacquesm
Escrow.com does not use bitcoin because of US anti-money laundering
regulations and since that was the chosen escrow party the deal fell through
(they insisted on using Escrow.com, not me). The next suitor did work out and
they too used Escrow.com so I'm pretty happy with Escrow.com and I'm not sure
that I'd trust a party that would flaunt US law to handle deals that size with
any reliability. After all, they could have their accounts frozen at any
moment. When you're in for the long haul it pays off to play by the book.

~~~
viraptor
I guess what he meant was why not convert to BTC, then BTC/USD exchange, then
non-Chinese bank so they can pay you.

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jacquesm
Which non-Chinese bank would that be? The party on the other side would have
had to have a bankaccount abroad already and in that case they probably would
have held the funds abroad if they could have.

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nugget
We'll know if/when China is actually successful in stemming capital outflows
because we'll see it reflected in real estate prices in tier 1 North American
cities.

~~~
TwoBit
Most of my friends that have tried to buy a house in the San Francisco
Peninsula have been outbid by Chinese paying 110%,with cash.

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rgovind
Someone posted a link here saying only 10% of houses were sold to chinese
investors, meaning not enough to influence the bids.

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nugget
It's more than 10%. Many Chinese buy via LLCs which makes ownership impossible
to determine. I work with one HOA board in Seattle where 50% of the units are
now owned by Chinese investors. They are debating whether to pass a
restriction on renting out units (limited to some % of total units, and you
have to join a waiting list until new spots open up). This type of restriction
eliminates investors but immediately drops market value by 20%. Similar to the
co-op system in NYC. Talk to a high volume realtor in SF, LA, Seattle, or NYC
and you will hear directly from them how many foreign buyers are influencing
the market.

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tim333
Maybe the time has come for China to move to a freely convertible currency. It
seems to work ok for most of the rest of the developed world.

~~~
peteretep

        > It seems to work ok for most of the rest of the developed world
    

It's the getting there that's the problem, and last time a major Asian economy
decided to float their currency, didn't work out so well...

[https://en.wikipedia.org/wiki/1997_Asian_financial_crisis](https://en.wikipedia.org/wiki/1997_Asian_financial_crisis)

~~~
tim333
The Asian financial crisis kicked off because Thailand tried to maintain a
fixed exchange rate and then was unable to because too many people were trying
to change Bhat into foreign currency and they'd run out so let the Bhat half
in value in a panic. Then people who had foreign debt and had counted on
changing Bhat to make the repayments couldn't and defaulted. Had they floated
a bit earlier before things got hairy they might have been ok.

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gefh
Limiting capital outflow to $50000 per person seems like an effective way to
keep well off people trapped in your country. While there are still
millionaires in China who would prefer to live somewhere else, new 'banks'
will spring up to help them. Morally this doesn't even belong on the same
level as other banking problems around the world.

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justincormack
Well much of this is the proceeds of corruption, so yes they do want to keep
them in the country.

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gefh
Now I know that this is more of a tax than a ban, the proceeds of corruption
bit sounds more likely. No one likes to tell the government about their
undeclared income.

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etaty
Well that "industry" could start to use cryptocurrencies.

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halviti
Anyone foolish enough to put 64 billion dollars into cryptocurrencies does not
need to be in charge of 64 billion dollars.

~~~
iheartmemcache
Yeah. Cryptocurrencies are not on the radar of anyone transacting even a few
orders of magnitude less than this. I'm not sure why the Party chose to expose
this ring right now but someone up-to-date on PRC politics certainly will be
able to fill us in on what triggered this event.

Undoubtedly, this has been going on for a long, long time. My friends wife
made a ton of money selling "old money" houses to the Chinese-New-Rich in
affluent suburbs of New England. I'm sure those on the West Coast heard
similar stories re: Vancouver and it's property boom as a result of the same
demographic.

This is just like any 'raiding the coffers' situation by an incumbent power. A
destabilizing event occurs (the fall of the USSR, the laxer economic policies
within the PRC, the overthrow of the Shah, the US profiteering off cocaine for
arms, etc). The fall of the USSR led to a few, well-connected dozen families
getting rich off the oil money to the point of casually buying UK football
teams.

You can be 100% assured that there will be some scapegoats taking a fall, a
fewer number of people in the party will be asked to fall on the sword. I'd
bet money that this is just another orchestrated sacrifice to business-as-
usual. We'd have to get access to all those MNC-bank records to really figure
out how much expatriated yuan left for other markets.

For the time being, they'll just effectively tender IOUs until the dust
settles[1]. It's been happening since before the modern economies emerged
(Dutch coffee shops and Lloyds Underwriting ship insurance is arguably that
point). Investment banks still trade amongst themselves in a similar fashion.

[1][https://en.wikipedia.org/wiki/Hawala](https://en.wikipedia.org/wiki/Hawala)

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derefr
Maybe a TPP side-deal with one of the places the money is being moved to?

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xgbi
Wasn't HSBC already included in a massive fraud somewhere else? Should they
not be seriously sued for that kind of thing?

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jsprogrammer
I believe HSBC gained immunity by paying a token fine and promising not to do
it again.

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justincormack
No the $1.9 billion fine was in relation to specific charges in Mexico, and
does not give immunity against anything else.

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jsprogrammer
Do you have any information about ongoing prosecutions of HSBC?

