Chinese are speculating in Australian realty

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From John Lee at locked BS today:

Chinese citizens have become quite clever and skilled at ‘illegally’ transferring large amounts of money out of the country…This is important because it is overwhelmingly the uber-rich – covering the top 1 per cent of households – that have the nous, means and connections to exploit these techniques for capital flight…much of the money entering the Australian and other residential property markets is doing so because of intricately constructed schemes…

…It could be that many want to emigrate [but] the ultra-rich are more inclined to want to stay in China for a number of reasons…One is that being intimately connected to the Chinese Communist Party, as almost all the ultra-rich are, they have no chance of accumulating similar wealth outside China’s CCP-dominated political-economy.

So if they do not want to emigrate, why are they buying such large assets as Australian residential property for themselves or their children, many of whom are students in Australian universities?

…real deposit interest rates remain close to zero or negative in China, as the government remains stuck in a pattern of encouraging investment over consumption (despite what the official press is saying). Why not speculate on a home in Sydney’s Chatswood or Melbourne’s St Kilda when the few million dollars would be losing value in the domestic banking system? Besides, local Chinese citizens realise that the fundamentals of the Chinese residential housing market are even more precarious than so-called bubble housing markets in countries such as Australia.

If that’s true then certain implications follow:

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  • the flow of investment will be cyclical and dry up if the market turns;
  • a falling dollar may prevent it being withdrawn as speculators do not wish to crystallize losses, but;
  • Chinese speculators don’t know what they’re doing because if Chinese property crashes so will Australia’s and the falling dollar will double the losses, and;
  • we’re selling out our children for the benefit of Chinese hot money.

All good, peeps!

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.