

Reasons to Open a Chinese Bank Account - garply
http://online.wsj.com/article/SB10001424052748704307404576080222812076888.html?mod=WSJAsia__MIDDLETopStories

======
msy
It's not a floating currency, it's directly controlled by politicians. Holding
yaun is taking a speculative currency bet on the competency of the Chinese
Communist Party to successfully manage the Chinese economy.

~~~
meric
Trust them to do everything they can to keep it growing. People are in China
are only generally content with their government because every year everyone
gets richer and richer, except the family five blocks down the road that had
their house confiscated and compensated only 25% market price because the
local council is planning to build a `public facility` on the land.

~~~
fleitz
Similar to the United States, except here your house gets seized to build a
factory for Pfizer. <http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London>

~~~
jamesbritt
Horrendous action, no doubt. But there was an interesting follow-up:

"Prior to Kelo only eight states specifically prohibited the use of eminent
domain for economic development except to eliminate blight: Arkansas, Florida,
Illinois, Kentucky, Maine, Montana, South Carolina and Washington.[30] By July
2007, 42 states had enacted some type of reform legislation in response to the
Kelo decision. Of those 42 states, 21 enacted laws that severely inhibited the
takings allowed by the Kelo decision, while the rest enacted laws that place
some limits on the power of municipalities to invoke eminent domain for
economic development. The remaining eight states have not passed laws to limit
the power of eminent domain for economic development." (from the same link)

I don't think you'll see that in China.

~~~
grandalf
One person's blight is another person's economic development opportunity.

------
maukdaddy
Much like the tech bubble and housing bubble, by the time you read these
articles in the mainstream press, it is FAR too late to invest. You've already
missed 10-15 years of explosive growth in the Chinese economy.

~~~
EliRivers
Simply not true. Laughably so. Listen to yourself. You're telling people not
to invest because they'll only do well out of it rather than doing very well
out of it. People were saying the same thing about gold two years ago and one
year ago.

~~~
quanticle
The problem with that sort of thinking is that it relies on you being able to
time when when market will go from being irrational in one direction to being
irrational in another.

Lets take the dot-com boom as an example. There were people saying that dot-
com companies were overvalued in 1997, when the Asian currency crisis hit.
Those people were, in retrospect, probably right. However, the next two years
made them look like complete fools, as the bubble maintained exponential
growth for another two years before completely collapsing.

Same thing with China. Yeah, the bubble might have another couple of years
left. If you get in now and get out when the crash hits you'll make a modest
profit. But, if you mistime the crash, you could stand to take huge losses, as
the value of your currency investments falls far below the price you paid for
them.

~~~
MoreMoschops
Your argument is a non-sequitur.

The original argument was that there was no point in investing, because if
you'd invested 10-15 years ago, you'd have made a lot of money. That argument
is wrong for obvious reasons, which I will spell out anyway; just because
something did well in the past is no reason to think you'll lose money on it
in the future.

Your argument is that if you invest in something and it goes down in value,
you lose money. That's true but not relevant.

Eli's point seems to be that it's possible to make money on an investment
after it's had an explosive growth stage; the obvious truth in counter to the
initial falsehood, and in no way addressed by your comment.

~~~
pyre
I think that the point is that after the explosive growth stage, if something
is a bubble you end up in a (possibly) short period before the bust. While you
_can_ make money investing during the period, the risk is that much greater
that you will miscalculate when the bust will happen and take heavy losses.
So:

    
    
      1. Explosive growth is over, you can't make money anymore.
      2. That's not true, you *can* still make money.
      3. But attempting to make money at this stage is riskier.

------
dublinclontarf
>Politically, the country is under international pressure to rein in its huge
trade surplus.

The government doesn't feel any of this pressure, as it's not an internal
issue they don't care.

I would argue that yes the yuan is likely to rise against the dollar, but
because of high inflation (very very high in China) most assets would also
rise in comparison to the dollar(Oil, Gold, Silver etc.)

Actually the only good reason to invest in the yuan I would think is
diversification. It's not a good idea to keep your investments as cash during
a time of high inflation.

In January 2006 Gold was $525, January 2010 it was $1125

Silver, January 2006 $9, 2010 $17, most assets are climbing fast in relation
to cash, much faster than 25% over 5 years.

~~~
garply
Is there much inflation in the US right now? It's really high in the mainland
at the moment, particularly with relation to food.

My business partner just sold an apartment in Beijing. I tried to convince her
to buy up some land back in the US, but she chose to buy another apartment
here instead. Part of her concern was that the US housing market was going to
be relatively flat for the next couple of years, which is her desired time
range for selling the new property. The future potential weakening of the
dollar vis-a-vis the RMB also played a role.

~~~
chailatte
US Rent prices rose 12% last year

[http://www.marketwatch.com/story/rent-prices-rose-12-last-
ye...](http://www.marketwatch.com/story/rent-prices-rose-12-last-year-report-
says-2011-01-07)

Sugar Prices Hit 30-Year Highs

[http://online.wsj.com/article/SB1000142405274870350690457559...](http://online.wsj.com/article/SB10001424052748703506904575591971478795824.html)

Gasoline Tops $3 a Gallon for First Time at Christmas

<http://www.dailyfinance.com/story/3-dollar-gas/19775116/>

Unless you believe the official US CPI, which excludes food/oil

~~~
yummyfajitas
CPI doesn't exclude food/oil, only Core CPI does.

<http://research.stlouisfed.org/fred2/series/CPIAUCSL>

<http://research.stlouisfed.org/fred2/series/CPILFESL>

The only major difference between CPI and Core CPI is that CPI is more
volatile than Core CPI. This is why, for the purposes of year on year changes,
Core CPI is usually reported. If we didn't do this, we'd get headlines like
"OMFG, massive inflation, we are all doomed" followed by "OMFG, massive
deflation, we are all doomed" 6 months later. Over a period of a year or two,
massive inflation x massive deflation = small but stable inflation.

A better way to go would be to use moving averages, but that's too complicated
to explain to reporters.

~~~
chailatte
Fair enough; a misnomer on my part. However, it's disingenuous to tell the US
consumers that the core inflation is 1.2%, when their gas price has doubled
(from 2009)

~~~
joshstaiger
You’re misrepresenting the data. Gas may have been $1.616 in Dec 2008, but it
was $4.114 in July 2008, and ~$3 in Feb 2008.

[http://money.cnn.com/2010/12/23/news/economy/three_dollar_ga...](http://money.cnn.com/2010/12/23/news/economy/three_dollar_gas/index.htm)

The price is volatile (especially on either side of a financial crisis).

------
samlevine
A better investment (for most people) would be in a mutual fund or index that
is tied to the Chinese economy.

~~~
cageface
What are some good examples of this?

~~~
beoba
Not specifically chinese: VGTSX/VTIAX

Plus, rather than speculating on a currency, you're actually purchasing a
piece of a foreign company's productivity.

------
steveplace
This is a friendly reminder that before you throw a ton of money into China,
you should probably discuss this with a financial advisor. The WSJ isn't
really the best place for advice as they don't know your individual risk
tolerance, and listening to advice on a startup-focused forum may not be the
best decision either.

------
sethg
OK, that’s the upside from the depositor’s point of view. What is the upside
from the Bank of China’s point of view? Given the massive dollar reserves that
the Chinese government has accumulated from its trade surplus, why should they
sell off renminbi in exchange for even more dollars? If the RMB/USD exchange
rate is almost certain to increase, why would the bank want to give up an
appreciating asset in exchange for a depreciating one?

~~~
tricky
Maybe it is a cheaper way to buy dollars? I couldn't find the interest rates
on the accounts anywhere on the site.

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dagw
tl;dr version

It's very unlikely to go down.

It's very likely to go up.

You won't miss out on a lot of interest elsewhere, as nowhere else is paying a
lot of interest.

It will diversify your portfolio.

And, finally, it may offer you and your family something of a hedge against
the decline of the U.S. economy.

~~~
wheaties
Ah yes, the holy trail of investments. This one, we swear, won't go down!
Really, look at all the reasons. Just like housing. It's not like their banks
have billions of yuan in loans to companies or government investment vehicles
which large numbers of economists question the viability if.

~~~
DenisM
Your arguments appears to directly contradict your skeptical position. If
there are a lot of bad loans on the books of Chinese banks, then the
inevitable write offs of these loans will cause massive asset deflation, same
as it did in the US in 2008. The result will be currency appreciation, or at
least the pressure to appreciate, given the currency peg presently in effect,
and holding such currency is appears to be a great idea.

------
emptyhanded
Good rundown in article. We were discussing this last night in the freenode
#startups IRC channel ;)

The rumor is that the $20K per year investment cap is limited only to
individuals and not institutional investors and funds. Furthermore, if there
is massive demand, it is expected that those caps will be raised.

What is unclear is how your yuan can be used to make investments in China
itself?

~~~
joe_the_user
Why would the Chinese lift the cap for institutional investors? They would be
the ones that would try to use the Yuan at some point. With a 20K cap, it's
more like a novelty than a real investment.

It seems unlikely the Chinese have a need for many dollars flowing to them. I
mean, look how many they have - unless something truly weird is going on...

------
juanre
Why would China do that? They already have plenty of foreign reserves ($2.85
trillion and growing - enough to buy Spain's GDP two times over), and they
seem to be struggling with inflation. I guess the Chinese government is not as
sure as the WSJ that the renminbi will appreciate.

------
d4ft
I am not an economist, but to me arguments 1,2 and therefore 5 seem specious.
3 and 4 hold water, but they are pretty self explanatory.

China's economy, to me, seems like a leverage play on the US. If the US
economy seriously stagnates, China's economy will follow suit, and likely in a
much more dramatic fashion. The opposite is also true, when the US consumers
get to spending China (at least for now) stands to benefit tremendously.

For me, the best option if you are looking at foreign currencies, is to go buy
a brazilian government bond and get 10% on your money in 3-5 years.

------
noelchurchill
Looks to me like China is exporting their currency, to export their inflation,
and stem the rising consumer costs in China. And I'm sure they have dreams of
being the next reserve currency of the world.

------
mlapeter
Speaking of currencies, I'm wondering if anyone more intelligent than me knows
what to make of this:
<http://research.stlouisfed.org/fred2/graph/?s[1][id]=BASE>

To my untrained eyes, it makes the idea of diversifying into anything other
than the US dollar seem like a good idea. But to be honest my understanding of
the US monetary system gets fuzzier the more I learn about it.

~~~
grandalf
Not claiming to be more intelligent, but my take on your question is:

Just as price is a function of supply and demand, so are exchange rates. The
money supply is independent of the price of goods and of the price of
currencies (exchange rates).

Seemingly, a larger overall quantity of dollars in existence would seem to
predict a decline in the value of the dollar relative to other currencies, but
the monetary policy decisions that resulted in increased money supply are
intended to achieve relative price stability.

For example, the dollars introduced to the economy and lent to banks had the
effect of encouraging banks to make loans, which helped increase demand for
products and services, which helped prevent prices from falling.

Also, many of the dollars are being used as reserve capital after the market
price of various securities which had been used as reserve capital declined,
leaving the entities under-capitalized. All this was done in an attempt to
keep interest rates low (in effect a price target) and prevent banks from
being forced to stop lending money...

So I think the bottom line is that the behavior of consumers and firms can
account for so much variability in supply and demand that the money supply can
expand greatly and prices can still say roughly constant... the other side of
the coin being that monetary policy was used to keep prices relatively stable,
in this case by keeping the credit infrastructure status quo alive.

edit: Of course, if the Fed gets it wrong or lacks the will to raise interest
rates when necessary, hyperinflation can result, which would impact exchange
rates.

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sdizdar
Investing in rubles ops.. yuans is very interesting proposition. Especially
when inflation rate is skyrocketing and there is housing bubble of enourmous
proportion. And China's economy is very much connected to US economy: if
dollar collapses and yuans unpeggs, China's economy will suffer.

As always, great advice from WSJ: I will have one million dollar in my account
in 5 years - if I start with two millions.

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16s
I know this won't be popular, but the whole idea of "diversification" has
always struck me as a lame attempt by rich people (Stock brokers) to get more
money from poor people. So I roll my eyes whenever a guy with a Rolex and a
Porsche is telling me I need to "diversify"

~~~
grandalf
Let me try to persuade you otherwise:

Imagine average Joe investing in a very non-diversified portfolio of one stock
which he has decided he likes, perhaps due to personal knowledge of the firm.

Over time, odds are this stock will do poorly compared to if he'd had a more
diversified portfolio.

It's the same general law of markets that is why it's generally better to
invest in index funds... they benefit from overall increases in productivity
and economic growth, without being subjected to all the risks that less
diversified portfolios suffer from.

Of course, it's always possible to formulate a 20/20 hindsight critique of
diversification b/c there is always an investment or two that retrospectively
looks like it would have been an obvious sure thing to a layperson.

~~~
nkurz
_Over time, odds are this stock will do poorly compared to if he'd had a more
diversified portfolio._

How are you calculating these odds? I'd naively assume that the average
performance would be the same but the volatility would be much higher. Dollar
cost average into it and you reduce this somewhat. I've never really
understood the magic of diversity either, unless it's just to insulate against
risk of ruin.

~~~
grandalf
Just look at the top stocks 30 years ago and see which ones are still in
business today, and of those which have beaten the market average. No stock
will outperform the market over the long term. Nor will any mutual fund!

For medium time horizons it's not impossible but exceedingly unlikely.

For short time horizons it's still not remotely easy for firms to accomplish,
and many do not.

~~~
jhamburger
> No stock will outperform the market over the long term.

So all stocks are below average...Sort of a reverse Lake Wobegon effect?

~~~
grandalf
I suppose it's possible for a company to exist indefinitely, but how many
companies that existed 1000 years ago exist today?

~~~
mnordhoff
Eleven!

[https://secure.wikimedia.org/wikipedia/en/wiki/List_of_oldes...](https://secure.wikimedia.org/wikipedia/en/wiki/List_of_oldest_companies)

------
sabj
Pro-tip: If you're in China, and a Bank of America customer, you can withrdraw
money fee-free at the China Construction Bank. Cash may be less convenient
than a Bank of China account, but, just saying.

------
StavrosK
In a rather-unrelated matter, does anyone have a Swiss bank account? I'm
looking for a bank to open one in but apparently most have a 500k minimum, I
just want a personal account...

~~~
CamperBob
What'd be the point? The days when the Swiss wouldn't rat you out to your own
government are long gone.

~~~
StavrosK
Greek banks are less than reliable at the moment...

~~~
jarek
German. Probably as stable as they get on the continent these days. I've no
idea if there are any residency requirements though.

~~~
StavrosK
Oh, very true. There shouldn't be any, as there are uniting laws for EU banks,
thanks.

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prostoalex
"But will we start banking in a Chinese bank? It's not as crazy as it sounds."

Hasn't HSBC had a fairly significant US/Canada presence for a while?

~~~
Lewisham
HSBC is headquartered in London, not China, and takes your money in the native
currency (USD/GBP/AUD etc), not in yuan.

------
bumbledraven
Buy gold instead, for the same reasons: (1) it's very unlikely to go down; (2)
it's very likely to go up; (3) you won't miss out on a lot of interest
elsewhere; (4) it diversifies your portfolio; and (5) it's a hedge against the
decline of the U.S. economy.

------
grok2
I don't understand this...are they giving you a better interest rate? Aren't
they simply operating as a US bank (if they are FDIC insured). You really
aren't investing in the Yuan...

~~~
sorenbs
see
[http://www.bocusa.com/portal/Info?id=649&lang=1&](http://www.bocusa.com/portal/Info?id=649&lang=1&);

Can I buy and sell RMB from/to your bank?

Yes, you can exchange USD for RMB or exchange RMB for USD at our bank.

~~~
grok2
Thanks for the link. Didn't realise that they are allowing you to buy the Yuan
and the account is actually in Yuan (though you deposit in USD -- conversion
at the time of deposit).

------
sagarun
May be it is a good idea for american's. I am from india and if i open an
account in Chinese bank my phone will be tapped for sure!

------
webuiarchitect
There is something called 'gold' my friend!

------
taiyab
Better than relying on the Fed to make the right decisions - "quantitative
easing", huh?

------
brianobush
Wondering if this is possible with a Japanese bank for Yen denominated
accounts.

------
maeon3
The Yuan is pegged to the US Dollar at around 1 yuan = 0.15 USD cents. A graph
of exchange rate for Yuan/USD over time produces a horizontal line.

The current president 'Hu Jintau' controls the exchange rate through China's
currency policy which dictates how many USD an owner of Yuan can get in
exchange.

So buying yuan is a bet that the peg will be removed and the USD will be
printed so much that nobody will exchange human labor for it.

It could work, but I'd buy physical gold before the yuan.

~~~
natnat
That's not true. The Chinese government may want to unpeg their currency (1)
to give their citizens more purchasing power, (2) because of trade pressures
levied by the United States backed up by the threat of tariffs, or (3) because
China doesn't want to export to the United States as much. Betting the yuan
will rise relative to the dollar is not even remotely close to betting that
the dollar will become worthless.

