Peter called Friday, he loved my post about their Chinese clients leaving the county. He said in conversations with other fund managers about clients in China, that the exodus is across the board. It has proved to be even easier than anticipated. Peter tells me that there is incredible pressure from bureaucrats and members of the PLA to take over private businesses. Two reasons, these two groups can see the writing on the wall, and that the massive push to reduce corruption is certain to make civil service and the PLA far less desirable as a career.
What is interesting is that these two groups have always tried to infiltrate the Chinese private business. There were always sinecure jobs for the sons and daughters of party officials or retiring senior members of the local PLA. Peter tells me that over the past 12 months, the pressure has escalated to the point where of his 250 clients in China (he could only meet 100 last time) more than half have already relinquished control of their companies (they got paid but not a lot). Peter said when the vultures of the PLA or the bureaucrats see prey ready to give up, they pounce in numbers. Furthermore, with the recent central government push, of these 250 clients he told me that nearly 2/3rd had their family relocated to other countries and that nearly all of them had given the firm alternative addresses outside of China.
The funniest bit is that as part of their sale's price, they got the bureaucrats to provide bulletproof exit visas. The bureaucrats don't want them around once they have completed the takeover of their companies. One of Peter's clients based in Shandong told him that it was the first time in two years that he had conversations with the state and central governments. In the space of 24 hours, he was able to get his first exit visa in nearly three years.
One of the tricks is to leave via the Hong Kong to Taipei route (almost 250 flights a week and it's not checked very hard by the PLA for Chinese nationals -- especially when the Chinese national has an exit visa!!!). From there they can fly anywhere.
When he enquired with the other City-based fund managers he was told that it was an across-the-board exit from the country that was taking place, facilitated by the bureaucrats and PLA looking for a cushy landing to avoid jail or firing squads or any repercussions. The move is so important that China Airlines temporarily added larger aircraft on the Hong Kong route to meet the additional demand (at least until this week when they elected their new president).
Apparently flying out of Beijing and Shanghai is getting increasingly difficult, but the extensive business ties between Taiwan and China make the journey easy, especially since the husband/father are travelling alone, as their wife and children left months ago.
It is hard, as an outsider, to understand the scope of the scandal with the missile Force, and the scope of PLA's corruption. Last week, Chairman Xi re-emphasized his campaign against corruption. In addition, state governments are screwed because of the housing crisis there are almost no land sales so zero revenues. Civil Servants are not getting paid because there's no money. Taking over a private company will ensure their survival.
As Peter said, most of his Chinese clients move their money out of China over several years. Whenever there was a foreign exchange liberalization they would use the excuse to expatriate funds. The rest of the time they used the true and tested transfer pricing method...it works all the time.
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