Devaluation of the Chinese Renminbi Adds Urgency to Chinese Emigration Drive
As the Chinese New Year is upon us, more home sellers are hearing about interest from Mainland Chinese buyers in Pacific Northwest real estate. Certainly the attractions of Seattle, Bellevue, and the broader Puget Sound region are among the reasons, as is the relative affordability of this area when compared with the traditional “gateway” destinations of San Francisco, Vancouver B.C., Los Angeles, and New York City.
There are other causes however, that are much closer to home. Among these are China President Xi Jinping’s anti-corruption campaign, which has raised alarm among many Chinese nationals, regardless of their non-involvement with fraud or other illegal activities. Fear often arises because historically, such campaigns have shown a high risk of devolving into “witch hunts” that sweep up large numbers of innocent persons along with a campaign’s intended targets.
Yet a more imminent and wide-reaching threat has now come to the fore. A full-blown currency war has been simmering among China, Japan, and the U.S. that threatens the value of Chinese renminbi-denominated savings and assets in China. William Hillis, Realogics Sotheby’s International Realty (“RSIR”) Research Editor and Publisher, reports that as of this writing, the renminbi is flirting with six-year lows against the U.S. dollar. The apparent crisis that is brewing is that devaluation negatively impacts all savers, not just the super-rich. This potentially accelerates capital flight from the Peoples Republic.
Regardless of years of talk about re-centering China’s economy to their own domestic consumers, the Middle Kingdom has yet to show any convincing success at shifting away from its export-driven economy. And it now appears that China’s banking and government leaders have instead chosen to double down on the export-promoting weak renminbi policy—punishing China’s notoriously penny-pinching households and driving many to seek out safer havens for their assets.
While observers among the policy-making community have attributed this to a communication problem, asChristine Lagarde of the International Monetary Fund (IMF) said last week that “China’s yuan policy has a communication issue,” alternative finance site Zero Hedge calls the weakening of the renminbi a deliberate action on the part of the Peoples Bank of China officials. Their recent article, “Chinese Rush to Buy Foreign Assets as Mammoth $1 Trillion in Capital Flees Country,” describes that “China is no longer willing to take it on the chin in the global currency wars. The days of Beijing sitting idly by and watching as the dollar peg kills the country’s export competitiveness are over.”
A staggering $1 trillion dollars is reported as having fled the country over the past year. That includes $449 billion from August to December 2015 according to Goldman-Sachs and $158.7 billion in January according to Bloomberg.
Despite tightening capital controls and international constraints on money laundering, Chinese property buyers have several open avenues by which funds may be spirited out of the country. Look for the numbers of these foreign buyers to grow unless or until the renminbi’s current trend is reversed.
Currency Chart Credit: XE.com