China Estimates Largest Capital Outflow in More Than a Decade in 2014 | Hacker News Reader

China Estimates Largest Capital Outflow in More Than a Decade in 2014

wsj.com

40 pointsfown936 comments

I know where it's going. My neighbourhood in Vancouver BC is covered in "for sale" signs. There are minivans full of Chinese investors paroling the sidestreets looking for houses.

The downside is that, by my count, more than half of the houses are vacant or under construction. I smell bubble.

>I smell bubble.

Canada is one of the last-men-standing as far as housing bubbles. Toronto is also bad. Calgary is heading for trouble now that oil has crashed. It could get interesting.

Australia and Canada are very similar. Both continued with a housing bubble well after all other Western markets collapsed. Both also supplied the raw materials that fuel China's economy; an economy that didn't slow down very much while the rest of the West suffered. But now they're clearly takings some of the heat out of their economy. Australia and Canada will feel that.

but just when will this bubble burst and are there any metrics or signs we can find that have suggested the bursting of subprime mortgage debts in 2008?

China's bubble has already burst. Their real estate market will continue to fall indefinitely. Their record debt accumulation will continue until they burst at the seams, while they try to keep the fake growth going.

Australia will trend down with China's weakening demand for resources. They're directly pegged to China's well being.

Canada will trend down (or up) with oil. If oil is $30-$60, Canada will have to tighten their belts. If oil is $60 to $100, all will be well, mostly.

That said, Canada's ability to binge on debt is likely nearing an end (including mortgage debt). Their household debt has continued to soar post great recession. Given where it's at now, there isn't likely a lot of runway left. 1-3 years tops. As the debt binge ends, the housing market will lose a lot of support. The only question will be whether it'll be an orderly decline, or a crash; and I think that will depend on how much higher that household debt level goes over the next ~36 months.

http://www.theglobeandmail.com/globe-investor/personal-finan...

The Canada vs US household debt chart paints the picture rather starkly:

http://i.imgur.com/HCp5Gs1.png

The typical vancouverite response (annoying) is

"oh but our prices will never fall, we live on the best god damn city in the planet, just look at all this foreign demand for our real estate, we are in a bubble you say, you eggheads have been crying about it for the past 15 years and look it hasn't happened so it never will, this time it's different"

"this time it's different" - japanese real estate bubble.

"we are in a new economy" - dot com bubble

"samsung now makes cars" - asian financial crisis

"these people will pay us back" - subprime mortgage crisis

"oil will never fall" - oil drop

"bitcoin is gonna keep going up" - 2013

And how's the weather where you are?

I took my dog to the dog beach this morning. Sunny and 12* ABOVE. We had one day of snow this year. And the "wet coast" is really a myth. Seattle gets rain, but Vancouver is tucked behind Vancouver Island and is much drier.

In all seriousness, the real estate market is driven by people with money, the investor class. They are older and do not necessarily work, or they work internationally and can park their families anywhere they want. So Vancouver, being Canadian but without Canadian winters, is something different. I think Toronto will burst long before Vancouver.

> And the "wet coast" is really a myth.

Nice try but Vancouver really is wet and miserable most days in winter. I know because I lived there for 5 years. Sure winter is more bearable than Halifax or St John's but that's not saying much.

Now I live in Melbourne and just laugh and point to the banana tree in my backyard when people complain about winter here.

if we're going with the Chinese investors are inflating real estate prices theory - most Chinese people would probably find the cold winters in the rest of Canada a deal breaker, whereas the rain in Vancouver is a mild inconvenience. If you don't want to go to the US, Vancouver Canada and Australia are at the top of the list - Vancouver doubly so because of the large native Chinese population.

Personally I think the foreign investment segment in the Vancouver real estate market is a bit over-reported. A large part of the demand here comes from East-Asian immigrants (30% of the population) who will buy a home despite renting being a better fiscal option. This is reflected in the gap between ownership and rental prices.

"And the "wet coast" is really a myth. Seattle gets rain, but Vancouver is tucked behind Vancouver Island and is much drier."

This is just blatantly false, and easy to check. Vancouver average annual rainfall is around 45 inches. http://en.wikipedia.org/wiki/Seattle#Climate Seattle average annual rainfall is around 37 inches. http://en.wikipedia.org/wiki/Seattle#Climate Vancouver also gets more snow. I guess Seattle is "tucked in" behind the Olympic Peninsula better than Vancouver is behind Vancouver Island.

Old data. I don't want to start a climate change debate, but since the rain of 90s Vancouver is very different. Extremely dry summers are now the norm.

http://globalnews.ca/news/754673/july-2013-the-all-time-drie...

Take a look at these images from January and December of last year. It is very hard to believe canada can be like this in winter. (I just grabbed a couple from my phone).

http://i.imgur.com/Kv9y42n.jpg http://i.imgur.com/4bTEfbr.jpg

Yup. This is why we moved away. When you go to an open house and every single person there except you is speaking only Mandarin, including the agents, then you know your time is done.

No one seriously says prices will never fall. People are just get tired of aimless remarks. You can repetitively tell a person he will eventually die, one day - but does that make any sense?

How is the US faring? Are we as linked to China's bubble?

If you're referring to a housing bubble, keep an eye on real estate stats, but not the ones the real estate folks release (because they always put it in the best light).

In Canada, units for sales have already tripled in Calgary, while actual sales have decreased. Housing prices have dropped 5%.

It might be the start or it might take longer, but it will happen.

US subprime mortgage defaults were just the trigger for the 2008 global financial crisis. Most subsequent mortgage defaults in the US (and Ireland, Portugal, Spain etc.) were for prime mortgages.

My guess is that the Saudi oil price war, Chinese credit defaults and turmoil in the Eurozone will trigger an even bigger global financial in 2015.

FWIW I currently live in Melbourne, Australia, but lived in southern California when the US housing bubble burst. I see lots of parallels in Australia, but if anything the housing bubble in Australia is even bigger due to idiotic policies like negative gearing and interest only investor mortgages.

Or maybe as China slows more Chinese people will flee China, pushing yet more money into the can/au housing markets.

The Chinese people I talk to in my neighbourhood all talk of Canada and Australia as more "stable" than the UK, China or the US. I'm not surprised. If all you have to go on are news reports, the US and UK don't come off well.

The Chinese could bleed $100B/yr into the west coast of North America for years and not blink.

That's cash, not derivatives, in those minivans. They're settling here, unless you think they're going to fall in love with Detroit or Wichita.

This is the new normal.

This a problem in first tier cities even in the US. It's not only the IPO crowd driving up prices in SF, NYC, etc. But these foreign investors --the IPO people get the flack from displaced communities, but foreign investment contributes its own good share of this new housing shortage... It's begun to affect second tier cities like Minneapolis, Austin, etc.

Try living in a city like Miami where a staggering amount of condos/property are primarily treated as a store of value by foreigners.

Sorry, but I agree, this is being felt by all first tier cities, like Miami, as well as second tier metros.

"Mr. Tao informed the audience that the capital flight from China in December alone amounted to $20 billion, and that was just from official channels. The true amount could be four times greater."

So this bureaucrat just committed career suicide by admitting this.

Where did you read that? Are you responding to a different article?

Not really, think again.

China needs to convert their $4T into "real value" sooner or later. Rather sooner. Various official statements over the last year indicated as much: "after decades of accumulating dollars and treasuries, we have concluded that it would be wiser to reverse course and start spending them".

This presents them with two problems, the danger of being accused of dumping dollars (aka of agressive currency warfare), and the risk that doing so too much, too fast could crash the value of their remaining holdings when "financial markets" see what you're up to.

Much better to let your 1.3 billion people do the job: seemingly-inadvertently "encourage" capital flight and replace any too many "capital outflows" with your reserves. Your folks buy up assets all over the world and officials have the excuse of an emergency situation that justifies "using our reserves that were always meant for a rainy day just like this".

Just a wild little theory of mine. Take it or leave it ;D

Interesting speculation. Anecdotally, I've heard that in some H1B situations where real estate is purchased, a % of the sale price is given back to the Chinese government.

So what? Of course China's capital outflows were huge in 2014 - so was its current account surplus. When China takes in huge amounts of foreign currency for its exports it must recycle those funds - which flow out of the country - particularly if it insists on intervening in the value of its currency (keeping it from increasing and therefore subsidizing exports). So, huge capital outflows for China doesn't necessarily mean a China-driven housing or asset bubble. It does mean the European Central Bank and Federal Reserve should have no problem continuing to sell paper.

I wish HN would ban paywalled article links.

I also think that would make sense. Paywalling is a legitimate business strategy amd I don't fault these companies for wanting to get paid for content creation. However, HN is an aggregator so many people can't view an article like this. If a paywall article is posted, it would be nice to have a link to a plain text version or alternate link. I think this would be a good compromise.

All you have to do is Google the title and click the link from there, and no paywall.

Isn't your good compromise just US Copyright violation by another name?

Not really, many online publishers allow direct access to shared links as an enticement to potential subscribers, it's like turning your reader base into your sales force.

I never knew this, cool! I think HN mods should negotiate some sort of deal so the links can be non-paywalled if you are coming through news.ycombinator.com.

I am reading this book 'The Dollar Trap: How the US dollar tightened its grip on global finance' [1], where economist Eswar Prasad explains how money flows into the US from around the world even when troubles originate in U.S financial markets.

[1] http://thedollartrap.com/

Apart from investing in real estate abroad, last year, Chinese folks were buying huge amounts of bitcoins.

What is the reason, Chinese people trust their economy less than the western economy ?

Evading capital controls, perhaps? Since the Yuan is not fully convertible, you can get USD from Yuan by using Bitcoin as an intermediary.

Chinese capital controls are easing. The country has a lot of cash and continues to have a lot of income from exports. They're buying nice stuff and taking luxury vacations. They're investing in foreign companies and property. They can afford to, so why not? Were they supposed to just sit on the funds forever?

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