Panic in China: 78% of All Capital Flight Found to be Illegal

Manipulated disconnect of the Shanghai index revealed

Forget the braindead reportage of the Shanghai’s overnight number – late rally produces last minute gains – and instead consider why (allegedly) there was a rally.

‘…the central bank cut reserve requirements for banks on Monday evening…’ [Reuters]

Now ponder this: The leading Chinese bourse index responded swiftly and positively to letting Chinese banks trade in a more dangerously exposed manner than they could before.

What does that tell you about the traders on that index?

Now think on this: as the PBOC cut those requirements long before the markets opened, why does that explain a late rally? If I saw it on BBCNews and Bloomberg around 9pm CET, why didn’t Mr Lee the Shanghai trader see it on on his smartphone when he woke up an hour later?

What does that tell you about the quality of media information we get?

OK, now let’s assume you don’t find the explanation convincing. Here’s a real fact for you to mull:

1. China had net capital outflows during the whole of 2015. China is not “fine”. China has lost the confidence of investors.
2. Wealthy Chinese are rushing to get their money out by overstating costs. Deutsche Bank analysts led by Zhiwei Zhang confirm now that over 78% of flight – about $328 billion – left China secretly in the August 2015-January 2016 period. Full story here 

What does that tell you about how Chinese experts on the ground are seeing things?

The Shanghai index is a fantasy. A surreal tableau created by opinion-leader balm-bollocks, sloppy Western thinking, PBOC monetarist lunacy and politburo secrecy.

It bears no resemblance whatsoever to what’s happening to the real economy in the face of global slump and investor fears.

Service rebalancing? What services?

Things are much, much worse than we’re being told.

Estbalishment commentators tell us the index is “disconnected to the upside”. It isn’t: it’s disconnected from trading economics.

And the problem is not restricted to China: disconnection is now generic across the global system of raising capital through bourses.

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Lesson 1, Page 1: The point of stock markets, also known in the Round as ‘bourses’.

The point: To enable capital earned by the better-off to invest in the expansion of business, trade and commerce, thus allowing companies to make more money with which to reward loyal shareholders, create more jobs for the less well-off, and export more to keep the country solvent.

Case history: how we lost the plot in the UK: As government became more involved in social betterment and provision towards the end of the nineteenth century, it was also recognised that a vibrant private sector would generate tax income for those involved in governance designed to improve the health, education and fulfilment of all citizens.

Capitalists vigorously opposed this at every stage, but the sovereign power of Parliament overruled them.

The idea thus became refined over time into a mutually beneficial model whereby go-getters could get going more quickly, and pay the sovereign power back for providing them with a healthy, appropriately educated and content workforce.

Along the way, better educated workers meant increased political sophistication, and the realisation that while bureaucrats, shareholders and capitalists were getting jolly rich, their kids were still sleeping three to a bed. Their trade unions became more powerful and had a degree of success in transferring capital wealth back to workforce remuneration. Mutualised building societies were also allowing poorer people to buy their homes, and thus amass some capital of their own.

But then the undemocratic trade union leaders decided they wanted more. And they wanted to keep those on the platform from getting on the gravy train. And they wanted a bigger and bigger say in how the country was run.

So a deranged, snorting mare led a surprise counter-attack, and was blessed with the likes of Scargill, McGahey and Hatton to make her case. She told the People that yes indeed, it was all about wanting more and more, and she would flog them cheap houses and discounted shares to hand more control back to them. It would also mean giving the real power back to multinational business and investment bankers, but this bit was sotto voce.

She based her ideas on the puerile thinking of an economist don who’d never had a proper job in his life, but who asserted, “Companies have no responsibility to society, only to shareholders”.

For the average citizen after Big Bang in the City (and elsewhere) more and more turned into less and less. But for the bonused dealmakers and speculators using other people’s money, it turned into more and more and more, developing into a frenzy of wanting more and more and more and more ad infinitum.

Where we are now: The variously defined, but succinctly titled Disconnect between funny money accountancy derived, speculative bourse wealth, and the productive gdp of the real world where people buy stuff, eat, have product ideas, sell known-value items and seek out more efficient ways to distribute it.

Today, real entrepreneurs only get bourse listings when they’ve already gone through the difficult bit of raising money elsewhere without being screwed by the bank providing the finance. ‘The markets’ – as professionals still call them – generate speculation based on often misleading macro data, geopolitics, energy availability, manipulated fiat currencies, sovereign debt bonds, commodity derivatives and futures, interest rate bets, central bank policy, changes of government, wars, and what ageing opinion leaders think.

They are indeed completely disconnected from the healthy use of capital for the general good. They have nothing to do with that any more except on one vital dimension: selling debt to the sovereigns and their citizens, this being the only way that ‘growth’ can be made to look real, and governments to appear solvent.

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What we’re seeing at the moment are some market realists grasping the seriousness of the situation, and trying Reconnection. To avoid too many people getting silly ideas, this is now referred to universally in the upper end and business media as Vollativverdeee.

But they’ve not been brought up in a reconnection culture. It’s not that they’ve forgotten Page One, it’s that their mentors airily told them, “Skip it, that’s not important right now”. Each time some excusatory drivel is dished out to ‘explain’ the clouds – or a brief shaft of sunlight peeps through them – they’re reassured, and pile into another rally. It’s what I’ve taken to calling The Wisdom of Clouds.

Ultimately, it explains why investors and their advisors respond to obscure factors and monetary confidence tricks, to pointless G20 talking shops and content-free central bank promises. They’re in awe of flawed monetarism, but ignorant of even the most basic common sense of economics.

Yesterday at The Slog: Is School Bully Cameron leading his Toryboys into the wilderness?

Filed under: NEW CHINA CAPITAL FLIGHT SCANDAL, Uncategorized Tagged: 3 in 4 Yuan capital flight illegal, Bourse Disconnect, Chinese illegal capital flight, Shanghai Index