How foreign property investors dodge FIRB

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By Leith van Onselen

The SMH has published an interesting snippet illuminating how some foreign purchasers of Australian residential property side-step the Foreign Investment Review Board (FIRB) by using family members already residing in Australia to buy properties on their behalf:

Buyer’s agent Shane Clinton of Buying Houses Australia says overseas buyers often side-step requirements that they only buy new property by purchasing established dwellings in the name of already established family members.

“The significant investor visa has taken a while to get traction, it’s building now, but it means that to date 99 per cent of my clients have been buying outside the recommended visa guidelines,” he said.

In Mosman, where more than 30 per cent of prestige sales last year were to buyers from China, McGrath agent Michael Coombs said of the eight sales he made to Chinese buyers in the past six months, three were to visa holders and five were purchased in the names of a family member.”

According to the above quotes, foreign purchases of pre-existing homes through family members looks to be substantial, raising doubts over whether the reported 5,091 existing homes sold in 2012-13 (valued at $5.42 billion) is anywhere near accurate (see below table).

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Unfortunately, there seems to be little that can be done to regulate foreign purchases through family members residing in Australia, since there is no easy way for FIRB to ascertain that such sales have taken place.

As such, the best way of ameliorating the price impacts caused by foreign investment is to free-up the supply process, so that the extra demand from foreigners (whether for new or pre-existing dwellings) leads to a large increase in dwelling construction, not just higher prices.

As noted correctly by MacroBusiness reader, Pfh007 yesterday:

If the market for housing was not dysfunctional there would be little or no interest from foreign buyers.

Holding an illiquid asset in a foreign jurisdiction with a lot of aggravation (tenants) to earn your rental yield is not attractive to most investors.

The fact that there is so much interest from foreign buyers is a big fat yellow canary.

Fix the distortions on the supply and demand side and the foreign interest will evaporate.

So while the Government’s inquiry into foreign real estate investment should certainly review the efficacy of purchasing pre-existing dwellings, it’s important to not lose sight of Australia’s other policies that have made foreign investment in residential real estate attractive in the first place, along with the need to implement a broad-based land tax to discourage homes from being kept vacant.

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Unconventional Economist


      • Agreed @Bluebird – so many people were able to buy a home with a very small mortgage, or possibly for cash. Surely this is a wonderful thing… which translates to less usury @Op8.

      • Bluebird, Andy,

        In the absence of the structural reforms necessary to prevent the same problems recurring, any benefits to some arising from a crash that might be pointed to, will be limited and temporary.

        Think of it as the patient experiencing temporary symptomatic relief, during a brief remission of their cancer.

      • That’s true @Op8 and I hope for that to happen as soon as possible.

        The problem is that true reform will not happen by choice – as evidenced by the recent wasting of the best opportunity in decades for reform with the bonus of a political scapegoat (GFC). A strong catalyst, preferably property price obliteration, is what I believe is required to really kick start reform.

      • Andy,

        I agree with you. As does history. But the sad reality of our apparent inability to learn from history won’t prevent me continuing to shriek for reforms in advance of the inevitable savage increase in economic pain levels for the 99% 😉

      • @Opinion8red

        Although Japan is quite protectionist housing wise, their house prices didn’t shoot off again. Ireland is an open economy, but their house prices haven’t shot off again.

        Certainly places like Las Vegas shot off again, not sure about the US overall. Don’t think so.

        Australia certainly has an appeal that those places don’t. Then again I’m sure millions of Polish and Bulgarians might find Ireland appealing.

        I think you could be right, but I think it’s not set in stone.

        After a crash will banks lend so lavishly again? After all, we’re on the hook for $400bn to bail them out should there be a crash. I think there might be a general consensus to go back to the “good old days” of 20% deposits and safer lending amongst the population and major parties?

    • Strange Economics

      One easy solution that would help – limit negative gearing property purchases to 1 per person ! Also remove FHB stamp duty discounts for foreign purchasers.
      If 6$ billion out of 160$ billion yearly RE market is visa, then make that 4 times more as much with “hidden” purchases – up to 20 % of the market from foreign purchases – a significant price force. RE agents must love these cashed up , price is no object buyers. Commission commission commission…

      • There are many possible easy solutions. Yours is a good idea, but there are so many others as well. The problem is not coming up with solutions – it’s getting the government to actually acknowledge the problem in the first place!

  1. Family members are the trojan horse, it’s full exploit mode after that.

    Any official stats are meaningless when Government and their agencies naively believe the Chinese follow our investment laws to the letter.

      • Except for the Government and the FIRB, but I suspect they did know but curtailed to vested interest lobbying.

        One can’t help but think of one of the Chinese 36 Stratagems:

        Make the host and the guest exchange roles

        Usurp leadership in a situation where you are normally subordinate. Infiltrate your target. Initially, pretend to be a guest to be accepted, but develop from inside and become the owner later.

      • Power. Thanks for introducing me to Stratagems.

        Loot a burning house

        When a country is beset by internal conflicts, when disease and famine ravage the population, when corruption and crime are rampant, then it will be unable to deal with an outside threat. This is the time to attack. Keep gathering internal information about an enemy. If the enemy is currently in its weakest state ever, attack it without mercy and totally destroy it to prevent future troubles.

      • WOW! Those 36 stratagems are so like the Ferengi rules of acquisition. LOL

        I wonder which came first …. LOL

  2. Yes, that’s what I suspected. The overall problem is Chinese money and its getting here by various means. Which is all the more reason to massively reduce immigration so we don’t increase the proxy pool. land tax/ large cap gains for second homes will also add disincentives. ……. and more supply.

    People have suggested monitoring fund flows from overseas and disallow them from purchases of existing property, nice in theory but I think it will be too hard to implement, monitor and obfuscate the truth ….. when policies aren’t simple and clear unintended consequences always follow.

    …… funnily enough I have seen some articles in nz saying they should be restricting foreign investors like Aus does. NZ has no restrictions as I understand it.

    • People have suggested monitoring fund flows from overseas and disallow them from purchases of existing property, nice in theory but I think it will be too hard to implement, monitor and obfuscate the truth

      Easy enough to put everything in the too hard basket… The majority of fund flow monitoring is already done or can be done quite easily. It is just a matter of enforcing it.

      • Ff, how do u tell apart a gift from a property purposed transfer? The purchaser would just say it was a gift, but maybe gifting duty could be applied here.

      • @squirell Have you ever gifted or have been gifted a large sum of money? If not, I suggest you try it. I you have and still think this is easy, I suggest you have been grossly misinformed.

        Again, like I said, it’ all about enforcing the laws.

    • Make it illegal for the onshore party to buy on the behalf, as in 10 years jail mandatory sentence, and full confiscation of the home by the state with no compensation to the illegal owner. Serious deterrents and penalties are required – if one wants to deny another Aussie a home it is fair & reasonable that their freedom and wealth are also denied.

      • I’m sure there is a way to monitor foreign funds if they wanted to – but they don’t. Remember, if any action is taken; any at all it would prick the bubble, and that goes against everything they (the govt, FIRB, RBA, whoever else) stand for.

  3. The FIRB have a compliance email address (mailto:[email protected]). I’ve pointed them in the direction of this article and quote. Note expecting any action but I feel I have to try…

    There is also a senator heading up an enquiry into foreign home investment that should be made to read this story

    • The FIRB accepted each and every submission last year. I don’t know what else they do, apart from approving every submission, but I’m pretty sure they are not going to get off their backsides to look for purchases that should be submitted but aren’t.

  4. The Chinese have already shown us the solution. Place a cap on how many investment properties an individual can own, both local and foreign!

      • This is very interesting. A full blown debate on foreign investment in land that rides magnificently past an entire army of spruikbots each holding a ‘racist’ ticket to pin on the unwary.

        Freedom to invest is a worthy concept. But it does not trump the interests of citizens at all times.

        Certain foreign investors are outbidding citizens for land because they get more for their money – they are buying two things: freehold land PLUS citizenship in a quality first world country.

        What price would you pay to live with clean air, quality food, universal health care and the rule of law?

        Hong Kong doubled Stamp Duty on foreign purchases to brake this exodus and capture some of the citizenship price currently being pocketed by vendors.

        The best way to redirect this investor impulse is through land tax and using the proceeds to untax wages and enterprise. Owners pay whether they use the land or not. If this is a key tax base, those who live and work in Australia cease subsidising those who do not. Our politicians fear land tax because it is so visible; that’s a feature, not a flaw.

        Major land reforms are ahead. We either undertake this process willingly and choose a regime in the interests of all, or entrench this era of debt-slavery and landlordism – the stakes are that high. I beg this digital community to stay the course and be the economic conscience of Australia and New Zealand. No one else is doing this work.

      • “an entire army of spruikbots each holding a ‘racist’ ticket to pin on the unwary”

        Let us not forget “populist”, “protectionist”, “nationalist”, and other labels of similar ilk.

        Just remember folks, when someone starts referring to you (and/or your argument) using a label, their goal is to cause you to self-censor. Do not fall for this bogus PC gambit.

        +1 your comment David.

      • To ensure that foreign investors pay their fair share of land tax, the land tax should assume the worst (i.e. everyone is a foreign investor and must pay a higher land tax). Upon proof of being a local the land tax is reduced to the local base. We have to close these loopholes.

      • @8red: Thank you.

        @ Andy! While a premium rate of land tax could easily be applied to foreign owners, this is probably unnecessary. Those who fail to put land to it’s best and highest use pay as if they were. A profound incentive to dispose of excess land or repurpose or build better structures that reflect the land’s potential.

        Want a building boom? Tax the land.

        I crave a dynamic, efficient land market. Anyone parking their fat bum on this essential ingredient to universal prosperity gets an annual nip. The lazier you are, the more it hurts.

        Australia has a tax system that nets every last minnow while letting sharks swim free. It doesn’t have to be like this.

      • @David, “Major land reforms are ahead.”

        Who says? It might happen eventually, but that could be decades away.

        I like reading your comments, but I think it might be wishful thinking to say there are going to be any sort of reforms in the foreseeable future.

      • Just remember folks, when someone starts referring to you (and/or your argument) using a label, their goal is to cause you to self-censor. Do not fall for this bogus PC gambit.

        You mean a label like “PC” ?

  5. The game is basically up for local buyers.
    Potential home buyers are an endangered species.
    The force of numbers coming out of China is too much.
    Mainland China has seen the problem and put in place curbs (2013):
    Property in China costs x30 times annual income versus 6-10 times here.
    They want our land, and unlike many countries, we have made it easy to obtain.
    @ Powermonger: “Make the host and the guest exchange roles”. – pretty well sums us up.
    Looks like Aus will be the first 1st World country to come under Chinese control in a virtual sense.
    Unlike Tibet, not one shot was fired.
    This suits the Laberals agenda: neo-feudalisation.
    Expect absolutely nothing to be done, then you avoid dissappointment.

    • Just a thought, but with Kevin Rudd speaking Mandarin and all, there might have been some Chinese officials whisper in his ear, “Let us take over your country through property or we’ll take over militarily.”

      And just look how willing we (vested interests) are to let them in without any restriction, even though their numbers are almost infinite compared to ours.

  6. Dodge the FIRB? Ha!

    There is nothing to dodge

    There is nothing to stop to a foreigner buying an existing Australian dwelling in their own name. Nothing!

  7. Oversupply has not stopped the Chinese speculating on property in their home country.. why would it be any different here?

  8. Nothing that the FIRB can do under current rules will have any affect. There are Chinese agents running around the country handing out large bags of cash to small business owners in return for pretending to employ a Chinese student/graduate, which will allow them to gain residency and then have property purchased in their name. When a small business making $100K in a good year is offered $25K in cash to do nothing but commit what they don’t realise is a fraud, there are plenty that will take up the offer.

    Domestic Chinese corruption has come to Australia and it’s way better at hiding itself than the local variety.

    • “Nothing that the FIRB can do under current rules will have any affect”

      The above statement is completely wrong.

      There is a massive regulatory gap in the existing transfer of title process that can easily fixed.

      • OK, it was a rushed statement. The point is foreign buyers are already finding their way through the existing FIRB processes without directly flaunting them. Starting to enforce them is obviously necessary but a holistic approach will be necessary.

      • We could say no. No foreign investment until further notice, and no immigration until we can cope with what we’ve already got. I’m not saying that will ever happen, but it’s not that we CAN’T do anything.

  9. Certainly family members are an issue, and possibly a big issue….

    But by far the biggest issue of all is that everybody in the game (from local investors, to Chinese [or foreign] buyers, the banks (and dont forget all major Australian banks are not just lending to Australian citizens for mortgages, but are also lending to foreign citizens for speculation in Australian real estate purposes [just look at the Singaporean/Hong Kong press], and the real estate agents, knows that the FIRB process is not just a joke, but is deliberately intended to be a joke for the benefit of the [mainly]Uncle Rupert media reading set.

    Within the last year I have taken part (advised the buyer on locations, logistics, geographic issues, and translated for them/sat with them in negotiations – they actually want to use the land for a genuine agricultural purpose) in the purchase of Australian agricultural real estate by a foreign national. I asked a number of real estate agents if there would be any Foreign Investment issues whatsoever and most simply gave me a smile and replied ‘we can take care of that for you’ – I was told this so many times and with such an obvious contempt for the FIRB process that the buyer asked me if the FIRB was genuine or not. Of course I told him it wasn’t. He registered a company in Australia and (to do the right thing) went and got a lawyer to do the FIRB end and the lawyers gave us the exact same email that Chodley Wontok got saying there was no need for the company to seek a FIRB approval. The lawyer subsequently told me that all lawyers having anything to do with FIRB tended to see the agricultural property issue as being arguably bigger than the residential real estate issue.

    And when it comes to agricultural land it isnt just a matter of the Chinese. I was told that up to 70% of sales of agricultural land worth more than 1 Million within a couple of hours drive west of Melbourne involved foreign nationals (when I was told this I asked the agent concerned if he meant 17% and he replied no 70%) involved foreign nationals [From Saudi Arabia, to Argentina to Korea – but also including China].

    Until Australia comes to a point where it is prepared to clearly articulate (to both its own people and foreign nationals) a set of foreign investment in real estate rules, and shows both that it is prepared to police them then it is the process that is the joke – nutting out who is related to who isn’t seeing the wood for the trees.

    Then of course there is the unspeakable issue of the veracity/integrity of money being used. Of course we don’t want to go there.

    …….it may not be a great idea to tell some kid wanting to slave away (and get the living shit taxed out of them to fund boomer entitlements) and pay off a mortgage, that they would be better off going to wherever and marrying someone with a corrupt uncle in the politburo or local government or state owned enterprise, that this is the more effective way to raise the readies and that the kids own government (to whom they pay tax, and who is ripping them off in a myriad of additional ways) makes no distinction between the dollars when it comes to deposits on RE.

      • Strange Economics

        1) To reelect a govt needs a lot of large donations from property companies. Reducing sales by FIRB rules will not help this

        2) To run a state govt they depend largely on Stamp Duty income – a 20%/year raise in house prices is a 20% rise in State Govt income.
        3) Where is the govt reelection benefit in lower house prices?

        Government’s no 1 aim is to get themselves reelected (for the good of all of us in their view, otherwise they can’t help us all !).

    • Gunna, we’re not going to see any sanity here for a long time. The reason? We are a slash and burn, rent seeking nation. The only type of value we’ve generated as a “nation” is by taking the magnificent continent from its original occupants. At the point of a gun. Now our institutions and elites are all lined up to profit from their incumbency alone. Out of ideas. Never have added value and never will.

    • Gunna, there must be a way to put your info out to the wider audience. You need to expose this corruption you describe.

  10. Following are excerpts from lengthy NZ article (02/02/2014).
    Aus is not the only country undergoing a rout.
    Shifting $10M out of China is “do-able”.
    Check the final paragraphs ‘Net-to-Vendor’ quasi-corruption or what?:
    Chinese Lead Investment
    “LAND BANKING: Bruce Whillans (NZ RE agent) sold $25m of property to a Chinese student living in Auckland.
    Ultra wealthy individuals and large China-based corporate investors.
    A common refrain from many of his clients was that although there were still difficulties moving large amounts of money out of China, shifting up to about US$10m a year overseas was “do-able.”
    Many were keen on buying vacant residential land earmarked for future development.
    “I think they are comfortable with landbanking because they understand residential land. . .
    Whillans said he sold a block of land for $25m to a Chinese student studying at Auckland university whose family hoped to move here. . .
    The opportunity to own land outright on a freehold title, rather than the standard 70-year leases granted in China, is one reason developers choose to buy land in Australia. “Its simple, you buy the site and don’t lose the title – ever,” managing director of developer Antaeus, Stanley Lei said.
    Having no caps on the number of properties an individual could buy in Australia was another incentive.
    Families living in Beijing are restricted to owning just two apartments.
    “Policies like this have driven Chinese locals to outside China to invest,” Lei said.
    “The prices are too high,” he said of Beijing. “And people are scared in a few years the prices will go down a lot.” . .
    Local agents have long accepted that Ferraris and a protracted negotiation process are par for the course when dealing with Asian property buyers. But a new crop of buying and selling practices, including “net-to-vendor” agreements, are ruffling feathers.
    A number of high-profile exchanges have been negotiated using the net-to-vendor model, which builds an additional “facilitation” fee into the sale price, agents say. A Sydney-based agent speaking on the condition of anonymity says he has seen instances where an intermediary involved in the deal will demand an introduction fee, taken either out of the agent’s commission or as a proportion of what the vendor receives.
    In these agreements, the fee is shared between the buyers’ agent and lawyers, accountants and in-betweens who put the deal in train by introducing a prospective buyer.”

    • Let me guess, the intermediary is a Chinese national asking for the facilitation fee? This exact same practise is used in restaurants in Shanghai to secure a table booking. You have to go through a 3rd party just to eat and pay them a fee.

  11. A Chinese resident borrowing from their non-resident family to buy Australian real estate.

    All Australian homebuyers buying through bank funding are also effectively boorowing a part from offshore as the banks intermediate foreign savings into Australian mortgages.

    If houses are significantly over-priced then selling them to foreigners is a great idea! The more overpriced stuff we manufacture (via apartment building in this case) and sell to foreigners, the better off we are!).

    What we don’t want to do is sell them underpriced stuff.

    The lower currency has allowed capital flight motivated foreigners to buy 6 apartments for every 5 they previously bought. Alternatively it has allowed them to pay 6/5’s as much in AUD for the same amount of USD as they could 12 months ago, putting the prices up by …about 20%…which is how much Sydney has risen from its trough!

  12. Wake up, Australia. You are being had.

    You are being exploited by a class of foreign gangster that does not respect your laws because he has not grown up in a nation of laws. He has grown up where you take what you can when you can. Laws are just commercial challenges, applicable only to fools. If they can be evaded or are not enforced then they are just part of the sport. Where he comes from this is par for the course, not frowned upon. It is how the elite he is part of make their living.

    He is laughing at your naivety as you sell him your children’s future. He pays for it with the proceeds of what you would regard as crime, but he does not.

    Your elites are profiting by this arrangement because they are selling to the foreign gangsters. These are the people who purport to have your interests at heart, but they are thoroughly corrupted. And these are the proper target of your anger. The foreign gangsters are merely products of their environment and they should not be your problem. They are a cancer in their own society but they should not be allowed to take root in yours. It is your corrupted elites who have rolled out the welcome mat for them.

    • blacktwin997MEMBER

      +100 well said McPaddy.

      Reading MB makes me sad and angry in equal parts – made worse by the fact there’s little that we can reasonably do about this awful situation in what was and should still be a great country.

      That said it has the highest density of reasoned economic argument and commonsense that I’ve ever seen on the web, which is why I keep coming back.

    • +1. Asking Lib/Lab and 99% likely the Greens to stop with this sickness is like asking the Pope to stop being Catholic.

  13. boomengineeringMEMBER

    The magnificent continent was not taken by the point of a gun. It was claimed first by the Dutch with many plates and plaques placed all over New Holland only one was ever found (by Europeans) dated 1616 and later by English who didn’t formally acquire it. The original inhabitants must be wondering at all this jostling over land which has their legal title.

    • The original inhabitants must be wondering at all this jostling over land which has their legal title.

      But I understand that Dinosaur culture did not claim ownership of land. They believed all creatures had equal “right” to use the land, and many of these creatures were also quite yummy.

      To put it another way: “original inhabitants” my @rse. It is a worthless concept.

      • migtronixMEMBER

        That’s true which by implication makes all occupation transitory. Don’t let the door hit your arse on the way out 😉

    • I don’t really want to get into a discussion over land rights as that wasn’t my point. My point was that substantially all the wealth that Australia has ever generated has been extracted from the land, not created by our ingenuity. And how did we get the land?

      • Force generally. You will find that land is acquired and kept by the use of force. Government means the most powerful force in a given area/region/facet/realm etc.

      • It would be polite of us to at least acknowledge that, wouldn’t it? I mean, expunge all the “settlement” claptrap?

        In any case, my point was rather that we bullied our way onto the land and have not done much more than extract what we can from it since. Hence, what’s happening now is all of a piece with our rent-seeking history. Our elites are now hell bent on draining the last scrap of value from that original innovation (the one where we took over the continent). It’s al they’ve ever known how to do and we’ve confused this with value creation. We can now use the land to siphon off some of the proceeds of corruption in far away lands and party on. Happy days! Pass me a beer.

    • Massacres of indigenous in punitive raids, poison flour and also, very significantly, illness and alcohol.

      In the US, the decimation of buffalo for skins, leaving the meat to rot also played a part.

      In the Amazon, destruction of forest and conversion to pastoral or soy drives the indigenous to other areas often already occupied leading to conflict and lower nutrition.

      No people gives up their rights to use their traditional lands if they will sustain them.

      When one side has guns and the other spears, the indigenous side learns pretty quickly that they are best to flee. The side with the guns doen’t have to kill all that many to capture/control all the best land and water.

  14. Good on MB for not accusing any single country ‘s citizens of this in the subject title — unlike most posters here who jumped to the conclusion that it was people buying on behalf of Chinese citizens. How do these people know that other ‘investors’ out there aren’t bidding on behalf of their American friend, or their Scandinavian friend?

    • Bit hard to imagine why our Northern Euro friends would want to spend $500,000 on a fixer-upper here when they can buy das bargains for half the cost in Germany or Norway: (Bargain of week tab on left)
      or home in USA on 5 acres for price of starter dump here:

    • Because the world trend is that this is not happening, in every western country it is predominantly Chinese buyers snapping up properties.

    • +1, my heart bleeds for all those FHBs who cannot afford to buy into Mosman etc.

      Conversely, had heard anecdotally of high salaried banker types etc. in Sydney suffering through taking their own lunch to work as banks called for more capital injections s the value of thier prestige homes dropped in recent years.

      Big issue is that many industries or occupations e
      g public sector management, advertsing etc. simply don’t have as many high salaried jobs as in the past…..

      Reading the comments I wonder if it is more worthwhile to vent one’s spleen at NG, SMSFS, buyer stupidity, media spruiking, rubbery clearance rates, dodgy data, redord low interest rates, coming death boom, lack of fast internet precluding moves to bush etc. vs the appearance of supposedly ‘foreign’ buyers ripping off ‘Australians’ in eastenr suburbs of Mel/Syd, changing the precious Ozzie lifestyles etc. If one wants to hear the like we need only listen to Alan Jones, Ray Hadley, Bob Carr and of course ‘Australia’s best demographer’.

      • Yes, please vent about anything else rather than drawing attention to the gross regulatory failure of the FIRB.

  15. Loophole in the significant investor visa scheme -> set up a trust and then the trust buys the property.

  16. boomengineeringMEMBER

    You are right about draining the last scrap of value. It started from day one because the English thought they would lose Australia like they lost America.Convict settlement was a pretext for lost naval base replacement. Get as much out as possible before they secede.

  17. Much more investment to come from China, they are only just starting.

    Chinese investors are chomping at the bit to spend $500 billion abroad over the next five years, and Australian real estate is near the top of their wish list.

    Chinese leaders continue to talk up the country's eagerness to invest in Australian real estate, as well as the established local investment channels of resources and energy.

    China's ambassador to Australia Ma Zaoxu recently told a business lunch in Perth that China Australia two-way investment had been expanding, with non-financial investment in Australia, including real estate, totalling $US3.94 billion ($A4.35 billion) in 2013, an increase of 82 per cent.

    "There's great potential for an increase in Chinese investment in this country," Mr Ma said.

    "Still much more is to be tapped."

    Sounds like Chinese government sanctioning of it’s citizens purchasing foreign property.

    • Think of it as a giant decentralised sovereign wealth fund.

      The more off shore hard assets its citizens buy the fewer $US treasuries the government needs to buy to keep the Yuan soft.