Reasons to Open a Chinese Bank Account

http://online.wsj.com/article/SB10001424052748704307404576080222812076888.html?mod=WSJAsia__MIDDLETopStories

by garply • 16 years ago

150 110 16 years ago

online.wsj.com

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• 16 years ago

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...

dagw• 16 years ago

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• 16 years ago

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.

DenisM2• 16 years ago

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.

roc• 16 years ago

It seems that if the goal is to diversify, there are plenty of other options. That isn't to say that this one is bad, but I'm deeply skeptical of any investment once the press starts running articles about why you should buy into it.

khafra• 16 years ago

Yeah; "diversify for safety by buying this one particular thing we're doing our best to make wildly popular" strikes me as disingenuous advice. "Diversify by holding a portfolio of small, mid, and large-cap domestic and overseas equities, ETFs, bonds, real estate, and other assets in proportion to your risk tolerance and investment horizon" seems to hold up better with a year's hindsight.

samlevine• 16 years ago

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

maukdaddy2• 16 years ago

I cannot upvote you enough on this point. Index/mutual fund is much less risky and provides much better tax benefits, especially if inside an IRA.

mark_l_watson• 16 years ago

Good advice, I think. Last year I put a year's worth of salary in a good emerging market fund and felt better having diversified. I think for us small investors, diversification for some tiny shred of possible safety is more important right now than maximizing yields. No investment is really safe though - best bet is in producing income in diversified ways.

cageface• 16 years ago

What are some good examples of this?

beoba2• 16 years ago

Not specifically chinese: VGTSX/VTIAX

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

steveplace3• 16 years ago

The least stupid course of action is dollar cost averaging against a global market index but since we're talking about fairly stupid bets such as throwing 4k into the Yuan, then here you go.

My bucket:

FXI is a China fund

EEM is an emerging mkts fund

EWS is singapore

or you could just assume that the Chinese will want meat so you buy MOO

or you can spec on the Yuan directly with CYB.

alexophile• 16 years ago

Or you can split the difference and look into ETFs comprised of Chinese assets.

dublinclontarf• 16 years ago

>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.

garply2• 16 years ago

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.

chailatte2• 16 years ago

US Rent prices rose 12% last year

http://www.marketwatch.com/story/rent-prices-rose-12-last-ye...

Sugar Prices Hit 30-Year Highs

http://online.wsj.com/article/SB1000142405274870350690457559...

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

steveplace3• 16 years ago

China just upped reserve requirements so I have a feeling they're aware of the pressure both politically and economically.

msy2• 16 years ago

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• 16 years ago

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.

msy2• 16 years ago

A growing economy does not necessarily correlate to an appreciating currency when its value is decided by political actors.

MikeCapone2• 16 years ago

I expect them to keep activity very high, but I don't expect them to allocate capital well in a way that will result in much profit and sustainable growth. This could last for a while, but IMO it's very unstable and could blow up faster than many expect.

Part of my reasons for believing this are stated in this presentation (which has been posted on HN, iirc):

http://dl.dropbox.com/u/6010227/Webshare/China%20Japan%20Pre...

fleitz• 16 years ago

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

reedlaw• 16 years ago

Ditto for the dollar. You're taking a bet on the Federal Reserve's competency in regulating the US economy.

Vivtek• 16 years ago

Yeah, and given the results of the past decade I'm inclined to trust the Communists... Not that they're actually communists; they're just a really big national corporation, imho.

sethg2• 16 years ago

If it had to, couldn’t the party trash the currency (from an international investor’s point of view) without trashing the economy?

grandalf9• 16 years ago

Not without also trashing it for those in China using it as a store of value, and not without the cost of price instability being imposed upon anyone selling/buying goods with the currency during the process.

d4ft• 16 years ago

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.

maukdaddy2• 16 years ago

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.

beoba2• 16 years ago

Meanwhile, http://consumerist.com/2011/01/vegas-atm-dispenses-gold-inst...

EliRivers• 16 years ago

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• 16 years ago

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.

DenisM2• 16 years ago

> Laughably so. Listen to yourself.

Your argument would make just as much sense without these words, and leaving them out would help keep HN a place for civil discussion.

MikeCapone2• 16 years ago

Usually when "everybody knows" that something is going to happen a certain way on the market, that's a very bad sign...

natnat2• 16 years ago

Perhaps in stocks, but the value of the currency is kept fixed by the Chinese government and wasn't available for purchase until very recently. Even if all of America's hedge funds spent all of their money on Yuan, it wouldn't get any more expensive unless the Chinese government intervened.

phjohnst• 16 years ago

Risk/reward.

If you got into China 15 years ago, you had no idea how things were going to pan out (and you deserve compensation for holding that risk). If you get in now, there's a more likely chance (I'd argue) that you'll do well, so the risk, and therefore the compensation you deserve, is lower. And holding currency is a lot less risky than equities, anyway.

The people that would be interested in a Yuan bank account up to $20000 aren't really sophisticated investors anyway.

grok22• 16 years ago

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• 16 years ago

see 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.

grok22• 16 years ago

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).

juanre• 16 years ago

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.

webuiarchitect• 16 years ago

There is something called 'gold' my friend!

sethg2• 16 years ago

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• 16 years ago

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

ArturSoler• 16 years ago

From the Chinese goverment point of view this is a small step (everything they do is in small steps) towards converting renminbi in a global reserve currency.

Their deep reason for that is turning Shanghai in the world's leading financial center.

patrickgzill• 16 years ago

All you are buying is a paper promise of yuan.

US dollars, devalued as they are, are still the reserve currency of the world and most importantly, oil is still denominated in USD.

So basically they can print up as many yuan as they can sell, and exchange paper with pretty pictures on it, for oil and other commodities they can actually use.

prostoalex• 16 years ago

"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• 16 years ago

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

16s3• 16 years ago

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"

grandalf9• 16 years ago

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.

16s3• 16 years ago

Sorry, it didn't work.

Diversification means I need to give the stock broker more money. That's all it means to me. I understand the risk aversion concept. You don't need to "educate" me.

Telling lay people (as you call them) that they need to do this or bad things will happen is the perfect scam. Create disonance and then offer a solution.

"Repent and ye shall be saved." "Diversify and ye shall be saved." I don't buy either argument. I got out of the market in 2000, never been back. Never will.

Edit... and yes, I owned index funds, but they wanted me to buy more index funds to further diversify my holdings. I learn quickly. That's always been my problem.

nkurz2• 16 years ago

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.

robterrell• 16 years ago

I know this won't be popular, but the idea of "backups" has always struck me as a lame attempt by rich people (Retailers) to get more money from poor people. So I roll my eyes whenever a guy who sells hard drives and RAIDs is telling me I need to "backup."

Nick_C• 16 years ago

It's because of covariance of returns. You can construct a portfolio with the same expected return as a single stock, but with much lower expected risk, defined as variance of return. Or a portfolio with higher returns for the same risk. And so on.

Anticipating your next question, yes, in general, historical risk has a high R2 with actual risk, where risk is defined as being normalised to an index.

mlapeter• 16 years ago

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.

grandalf9• 16 years ago

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.

maeon3• 16 years ago

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.

natnat2• 16 years ago

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.

sagarun• 16 years ago

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!

noelchurchill• 16 years ago

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.

sabj• 16 years ago

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.

steveplace3• 16 years ago

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.

sdizdar• 16 years ago

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.

StavrosK3• 16 years ago

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• 16 years ago

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

StavrosK3• 16 years ago

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

taiyab• 16 years ago

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

brianobush2• 16 years ago

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

bumbledraven• 16 years ago

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.

Reasons to Open a Chinese Bank Account

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