Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Currencies, Equities

Scary movie sequel beckons for eurozone markets

Just as horror movies can spook fright nerds more than they expect, so political risk is sparking heightened levels of anxiety among seasoned investors. Investors caught out by Brexit and Donald Trump are making better preparations for political risk in Europe, plotting a route to the exit door if the unfolding story of French, German […]

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Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

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Archive | Currencies

Mario Draghi’s difficult juggling act

Posted on 29 November 2016 by

The calendar is not kind to the European Central Bank. A week on Thursday, its governing council will deliberate, just days after Italy’s vote on constitutional reform, and a week before the bank’s US counterpart holds a meeting which could move the world’s bond and currency markets.

Temporal pressure of another kind is also building, as the ECB buys €80bn of bonds each month in a programme that runs until March. Extending it could create a new problem, as there may not be enough German Bund’s available next year to keep the ECB’s spending on the eurozone member country’s debt in line with a carefully agreed formula.

So Mario Draghi, head of the bank, must somehow ensure stability following a referendum many expect the Italian government to lose, without unduly favouring that country’s sovereign bonds. He must try to keep borrowing costs suppressed across a continental economy where inflation is absent, while also keeping banks healthy and profitable so they lend to businesses and consumers.

The ECB must also stay credible to bond market investors and traders who were disappointed by the size of stimulus a year ago, while placating those within the institution who fret about the extraordinary measures it has taken already. All while anticipating any effect the Federal Reserve may have a week later.

A US interest rate rise is about as close to a sure thing as market prices get, but the message on how fast future increases will arrive, and how high they might go, could have dramatic implications. If accelerating US inflation is in focus, meaning higher bond yields lie ahead, a stronger dollar will help European exporters. Parity between the dollar and the euro might beckon. Yet if markets have got carried away with prospects for both inflation and a response from the Fed, the euro could soon reverse course.

So what can Mr Draghi do? An official forecast for headline inflation in 2019 to hit 2 per cent might help to remind investors that inflation will one day return.

Another option is to extend ECB bond purchases, but at the €60bn a month pace at which quantitative easing began. A taper presented as a tweak, it would at least buy that most precious commodity: more time.

Korean stocks, won strengthens after President Park offers resignation

Posted on 29 November 2016 by

South Korean stocks and the won strengthened as Park Geun-hye, the country’s embattled president, said she was willing to relinquish power in the wake of a mounting corruption scandal that has gripped the nation.

The benchmark Kospi was up 0.2 per cent in the wake of President Park saying she was willing to step down and her request for parliament to come up with a way for stable regime change.

The index had been down by as much as much as 0.3 per cent during the afternoon session, but had trimmed declines to one-third of that amount before President Park began speaking at 2.30pm Seoul time.

The Korean won was 0.2 per cent stronger at 1,167.73 won to the dollar in the wake of the news, having been flat just before President Park’s address to the nation began. In February, the won reached a six-year low against the US dollar of 1,238.77 won.

(Chart courtesy of Bloomberg)

China clamps down on foreign M&A in battle against capital flight

Posted on 29 November 2016 by

China’s government is poised to impose new restrictions on outbound foreign investment in a bid to curb capital outflows that are putting downward pressure on the renminbi and draining foreign exchange reserves, according to sources.

The State Council, China’s cabinet, will ban outbound investment deals worth more than $10bn or mergers and acquisitions above $1bn if they are outside the Chinese investor’s core business, according to two sources who have seen a draft document outlining the new rules. State-owned enterprises will also not be allowed to invest more than $1bn in foreign real estate, according to the sources. 

Separately, the State Administration of Foreign Exchange, which approves conversion of renminbi into foreign exchange, held meetings with bankers in multiple cities to inform them of new approval requirements for large outbound deals, China Business News reported. 

China’s foreign dealmaking has surged this year. Non-financial outbound investment by Chinese companies totalled $146bn in the first 10 months of 2016, above the record-high $121bn total for all of 2015, according to commerce ministry data. 

Due largely to capital outflows, the renminbi has fallen 5.8 per cent this year, on track for its worst year on record. China has sold dollars from its foreign exchange reserves to try to curb downward pressure on the currency, with reserves hitting $3.12tn at the end of October, the lowest level since March 2011. 

If formally issued, the State Council document would make explicit a policy shift already under way informally. Bankers have said in recent months that Safe has applied existing rules more strictly in order to delay or reject forex approvals that were once routine. 

In a joint statement by four agencies including Safe and the central bank on Monday, the government said it would “combine increased convenience of outbound foreign investment with prevention of foreign investment risks”. 

China is on pace to record its first ever net foreign direct investment deficit this year, according to balance of payments data. Inbound FDI exceeded outbound flows every quarter from 1998 until the midpoint of last year but China has reported FDI deficits for four of the last five quarters, including a record $31bn deficit in the third quarter of 2016. 

Despite the increase in FDI outflows, such investments remain only a small slice of China’s broader capital outflow. Excluding FDI, China suffered a capital and financial account deficit of $176bn in the third quarter — much higher than the $31bn of FDI outflows. These so-called “hot money” outflows include investment in stocks and bonds, as well as trade credit and other bank loans. 

Additional reporting by Lucy Hornby 

Twitter: @gabewildau

Markets digest news of China capital controls over lunch

Posted on 29 November 2016 by

Investors may keep a cautious eye on Chinese markets this afternoon following reports Beijing is poised to tighten capital controls and restrict the flow of outbound investment from the mainland.

Further restrictions could have implications for companies and individuals keen to purchase assets offshore.

The likes of Anbang, HNA Group, Fosun and Dalian Wanda have spearheaded an overseas shopping spree by Chinese companies in recent years. As well as potentially tempering their international ambitions, it could also slow the ability of fast-growing tech companies to hunt targets overseas, such as Chinese appliance maker Midea’s €4.5bn offer for Kuka, a German robotics maker, earlier this year.

As China’s stock market paused for its mid-session break, news of imminent tightening of capital controls by China’s foreign exchange regulator emerged.

A Bloomberg report citing unnamed sources as saying the State Administration of Foreign Exchange was withholding approval of outbound investments for investors with remaining quota of $50m or more and requiring prior approval from government agencies on foreign exchange transfers of $5m or more.

South China Morning Post, also citing unnamed sources, likewise referred to a $5m threshold above which overseas payments would require clearance from Beijing and cited a document referring tighter controls on outbound investment slated to start from September 2017.

Indices tracking mainland companies listed in Hong Kong showed signs of selling off following the reports, but any direct link is not immediately clear. The Hang Seng China enterprises index was down 0.1 per cent, while the Hang Seng mainland index had swung from positive territory to be fractionally lower.

The renminbi is one-third of 1 per cent stronger at Rmb6.8921 per dollar. The offshore renminbi, which trades outside the mainland and is not subject to a trading band, was 0.2 per cent stronger today at Rmb6.9153. The two rates firmed as the US dollar weakened today, but were relatively steady as reports of the capital restrictions emerged.

Pound enjoys respite as Brexit risk looms

Posted on 29 November 2016 by

A surging US dollar on the foreign exchange market, has encounter one obstacle in the form of pound sterling.

The UK currency has held firm in November, rising nearly 2 per cent versus the dollar and set for its best monthly performance since January 2009.

The Bank of England’s effective exchange rate index, which measures the value of the pound on a trade-weighted basis, is 4.8 per cent higher since the start of November. This comes after the index slumped to an all-time low in October in the wake of the country’s Brexit vote.

The pound’s particularly strong November performance against the euro, up 5.1 per cent, has driven the rebound in the index, given the importance of the single currency bloc as a trading partner. The US, Japan, China and Switzerland are next in terms of importance as trading partners for the UK.

Political risk still the driver of sterling …

The pound’s Brexit convulsions have been on hold in November, while it has been the turn of political risk from beyond the UK to affect sterling — pushing it higher.

Donald Trump’s election victory has changed investor sentiment in a number of markets. Selling sterling was one of the most favoured trades ahead of the US election, and “the Trump effect has reversed all the trends we saw”, according to Bilal Hafeez, FX strategist at Nomura.

With political risk the number one concern of investors, European events are at the centre of attention, beginning with this weekend’s Italian constitutional referendum. Further weakness by the euro against a range of currencies, including the pound cannot be ruled out.

… Don’t ignore the economy …

The dollar’s rise post-election has a bearing on sterling. Adam Cole, G10 FX strategist, says the pound becomes a “mini-dollar” on a dollar rally “primarily because there are such close links between the corporate sectors” through big foreign direct investment flows. “The US and UK cycles tend to be synchronised as a result.”

Meanwhile, the UK economy, which has had varying degrees of influence on sterling since Brexit, is again being noted by investors. Luca Paolini, chief strategist at Pictet Asset Management, says the pound looks cheap, with the exchange rate on a par with “fairly dire economic growth”.

Weak growth may well be the UK’s destiny during Brexit negotiations, Mr Paolini adds, but in the short term the economy and UK assets are more likely to exceed expectations, “which in turn presents potentially attractive investment opportunities”.

… And definitely keep on top of Brexit

Some investors see the UK’s Brexit difficulties in a different light post-Trump. One rationale, says Roger Hallam, currencies chief investment officer at JPMorgan Asset Management, is that the UK’s security expertise could become an important piece of leverage in Brexit negotiations if the European Union has to worry about US Nato commitments.

Investors have also noted a change in tone since the UK’s apparent Hard Brexit position of October, such as increased talk of a transitional Brexit. “The rhetoric has become more nuanced, and it’s not as compelling to be short sterling,” Mr Hallam says.

But the UK’s current account deficit remains a significant problem for many investors, and Brexit is “still a challenging process”, adds Mr Hallam.

The pound’s recovery in perspective

Sterling’s strong November performance cannot mask its five successive months of decline after the vote for Brexit. That period was bookended by Brexit in June, during which the trade-weighted index fell 8 per cent, and the flash crash in October, a month that saw the index decline 4.2 per cent.

From a peak of 87.76 on June 23 to the 73.72 trough of October 17 when it hit its lowest level on record, the index has fallen 16 per cent.

The pound still has a way to go to breach long-term resistance levels against the dollar, although there is a breakthrough against the euro.

Consolidation is the next phase

RBS expects further gains in the final month of the year as real money asset managers shift their sterling bias from selling to a neutral view and speculative trades focused on a weaker pound are squeezed out of the market.

Mr Hafeez is more circumspect. He thinks support for the pound is artificial, while attention on European politics dominates market sentiment. Until the French election and clarity on Brexit legal rulings, sterling will be in “a holding pattern”, he adds.

European stocks hovering under Italian nerves, waning US momentum

Posted on 29 November 2016 by

Stock markets in Europe are stuck in the mud after Wall Street retreated from record highs as the rally on hopes for a Trump-led US economic boost shows signs of losing momentum.

US index futures suggest the S&P 500 will recover 2 points to 2,204 when trading gets under way later in New York, having retreated 12 points on Monday from its best ever close. The cautious tone sees oil lead industrial commodity prices lower, but encourages buyers of Treasuries, nudging down yields.

European markets remain wary of the Italian constitutional referendum this weekend.

The Euro Stoxx 600 Banking index is down 15 per cent this year, against a 7 per cent decline for the region’s market as a whole. On Tuesday, the FTSE MIB, the Italian equity benchmark is recovering 0.4 per cent, still leaving it down 24 per cent for 2016. The yield on 10-year Italian government bonds is up 2 basis points to 2.08 per cent, meaning investors demand a yield premium of 1.88 percentage points for Italian debt over German yields, around the most since October 2014.

What to watch

Keep an eye on the US dollar for signs that the “Trumpflation trade” may be fading. The dollar index (DXY), which measures the buck against a basket of its peers, towards the end of last week hit a near 14-year high of 102.05 having jumped on expectations president-elect Donald Trump’s mooted spending policies would deliver a stronger US economy and thus tighter monetary policy.

This reasoning has also helped drive gains for growth-focused assets like industrial commodities and equities.

But Tuesday sees the DXY off fractionally to 101.30, in line for a third down day in a row ahead of US third-quarter GDP data, due at 13:30 GMT and a November US consumer confidence report, scheduled for 15:00 GMT.

And traders will also be aware of the US monthly jobs report on Friday. However, the data would have to be particularly poor to dissuade the Federal Reserve from raising interest rates in December, given the market is currently placing a 100 per cent probability on a 25 basis point hike.

The pan-European Stoxx 600 is down 0.3 per cent, with financials striving to recover some poise but energy groups under pressure.

Japanese stocks were lower after the decline in the dollar caused the yen to strengthen overnight. The Topix benchmark dipped 0.1 per cent, ending 12-day’s of gains that were powered by the yen being the main casualty of recent dollar strength. The Nikkei 225 fell 0.3 per cent.

Much of Asia noted the soft lead from Wall Street, causing Australia’s S&P/ASX 200 to ease 0.1 per cent, while Hong Kong’s Hang Seng was down 0.4 per cent. However, China’s Shanghai Composite, bucked the trend, adding 0.2 per cent even though the technology-focused Shenzhen Composite lost 0.7 per cent as investors absorbed news that Beijing is to restrict the flow of outward investment.

The yen is again weakening as European trading gets under way, off 0.3 per cent to ‎¥‎112.30 per dollar. The currency strengthened briefly following the release of retail sales and household spending data that showed a less severe contraction in October.

A notable major Asian currency on Tuesday was China’s renminbi, up by one-third of 1 per cent at Rmb6.892 per dollar as the greenback weakened and the country’s central bank fixed the currency’s trading range with the US dollar stronger.

The South Korean won is 0.2 per cent firmer at 1,169.17 per greenback — and the stock market was flat — after the country’s scandal-mired president offered to stand down.

Oil prices are weaker ahead of Wednesday’s much-anticipated meeting between Opec members that markets hope will result in supply cuts.

Brent crude, the international benchmark, is down 0.9 per cent at $47.82 a barrel, while West Texas Intermediate is slipping by 0.8 per cent to $46.77. Prices jumped 2 per cent on Monday on hopes that the Opec meeting would yield a deal.

Base metals are generally softer after their recent good run, while gold is down $3 to $1,1910 an ounce.

Fixed income
The market’s broadly tentative tone is supporting US bonds, but moves across the spectrum are meagre and mixed.

The 10-year Treasury yield, which moves inversely to the bond price, is down a fraction of a basis point to 2.31 per cent.

The equivalent maturity German Bund yield is adding 1bp to 0.20 per cent and UK gilts are up 1bp to 1.39 per cent

Oil currencies poised to get a boost if Opec secures output cut

Posted on 29 November 2016 by

The oil price has been unsurprisingly choppy in the lead-up to Opec’s meeting in Vienna on Wednesday. Will a deal to curb or cut production be reached?

Perhaps more importantly, will any deal be adhered to? Sceptics expect “yes” for the former and “no” for the latter.

But forex strategists at UniCredit think there is a greater chance of positive outcomes for oil-related currencies from the Opec meeting.

Brent crude has pulled back by several dollars from the recent peak it reached following the Algiers proposal to cut production, “suggesting that the market has priced out a considerable amount of the initial optimism”, said the Italian broker.

“In this sense, if Opec members this Wednesday do not agree on cutting production, sustained downside in oil prices and hence oil-related currencies appears to be limited.”

Alternatively, any deal deemed credible should cause a jump in oil prices, and — providing the US dollar (USD) does not see another surge higher — should boost the usual commodity currency suspects such as the Canadian dollar (CAD) and Russian rouble (RUB), said UniCredit.

It has looked at longer term correlations with the oil price and those currencies.

“We find that, should the oil price rise towards $55 a barrel, this by itself would be consistent with USD-RUB at around 60 (ie. a gain of 8 per cent for the RUB) and USD-CAD at 1.27 (ie. an appreciation of roughly 5.5 per cent for CAD).”

Renminbi holds ground against the dollar

Posted on 29 November 2016 by

The renminbi strengthened against the dollar on Tuesday after China’s central bank tightened its currency trading band for a second straight day.

The People’s Bank of China set the midpoint of the onshore version of the renminbi’s 4 per cent trading band against the dollar at Rmb6.88890 on Tuesday, up 0.2 per cent from Monday.

The renminbi remains near an eight-year low against the US dollar as the election of Donald Trump has intensified longstanding depreciation pressure.

The offshore rate strengthened 0.3 per cent to Rmb6.892 per dollar on Tuesday, as the world’s reserve currency ebbed until stronger-than expected US economic data triggered buying of the dollar in the New York trading session.

The index tracking the dollar against six of its rivals was up 0.1 per cent at 101.45, as the euro slipped below $1.06, after two consecutive sessions of overall decline. The dollar’s sustained run higher since the US presidential election has pushed the index to its highest level since 2003.

The trend of stronger dollar, higher bond yields and record US equity highs is seen weighing on emerging markets, with the risk of rising capital outflows.

“The immediate risk is that relentless capital outflows could weaken currencies and make debt expensive enough to warrant sharp demand adjustment in some EM economies. Those ranked as highly vulnerable in our analysis are clearly under scrutiny at this juncture,” noted analysts at Deutsche Bank.

“China remains in the high-risk category in this iteration. Weighed down by a sharp decline in growth momentum, an overvalued currency, and a heavily-leveraged corporate sector, China continues to struggle in taking steps to correct financial imbalances without undermining the growth dynamic. Rapid credit growth and frothy equity and property markets add to its vulnerability,” said Taimur Baig, chief economist.

Meanwhile, South Africa’s rand was hit by the outlook for sustained political turbulence at the top of the ruling African National Congress party. The currency weakened 2.1 per cent with R13.9889 required for a dollar after its president, Jacob Zuma, survived the most serious threat to his tenure, extending the prospect of uncertainty relating to the likelihood of further challenges to his leadership.

Mr Zuma and his allies in the ANC were said to have thwarted the no-confidence vote at a meeting of its national executive committee in Pretoria after hours of heated argument late into Monday evening. Mr Zuma’s opponents struck after rising concerns that the ANC could lose power for the first time since it overthrew apartheid in 1994, unless it forces Mr Zuma from office well before national elections in 2019, when he is due to step down.

Mr Baig said Deutsche Bank’s “EM vulnerability monitor”, designed to assess the susceptibility of countries to crises, found that “South Africa’s ranking has worsened materially”, saying “political noise” was “particularly relevant in this context”.

The buying spree behind Beijing’s crackdown

Posted on 29 November 2016 by

The days when a Chinese iron ore miner could buy a UK video game developer are drawing to a close as Beijing tightens up on cross-border investment by its companies.

Investment banks in Asia have worked overtime this year on bringing an expansive range of acquisition targets to aggressive Chinese groups, many of which have strayed far beyond the acquirers’ original scope of business.

According to commerce ministry data, overseas purchases by Chinese companies have surged past last year’s record of $121bn for non-financial outbound investments, reaching $146bn over the first 10 months of 2016.

The spree in the past few years has seen an airline buy a financial services business, an insurer move into the global hotel industry and a shopping centre developer purchase a blood bank. Most notably, Shandong Hongda, a lossmaking Chinese iron ore miner agreed to buy UK game developer Jagex earlier this year.

Beijing is seeking to cut back on such activity, which is thought to have helped some investors move billions of dollars offshore as the country’s currency depreciates and its economy slows.

The State Council plans to issue a circular that will tighten regulations on Chinese groups that acquire overseas companies that have little to do with their core business. Such acquisitions worth more than $1bn would not gain regulatory approval, according to two people that have seen a draft of the document.

It has also proposed stricter approval requirements for cross-border deals worth more than $10bn and on state-owned enterprises investing more than $1bn in foreign real estate, according to the two people.

“There have been a lot of deals that don’t make strategic sense. [A crackdown on capital controls] would be a reaction to that,” said a senior M&A banker based in Hong Kong. “If the deal is strategic and it’s good for ChinaChina, it can still get done.”

During 2016, Chinese companies agreed 33 acquisitions valued at more than $1bn each. At the start of November only seven of those deals had been completed, according to an analysis of data from Thomson Reuters. Six Chinese acquisitions announced since 2008 have surpassed $10bn. ChemChina’s buyout of Swiss agribusiness group Syngenta, which was announced in February but is still awaiting regulatory approval in Europe, topped the list at $44bn.

Some banks have already reacted to companies viewed as having “aimless” expansion plans, by removing them from target client lists and curtailing access to loans.

One Chinese bank recently removed HNA Group from its list of target clients following concerns over the company’s acquisition strategy and that some of its deals would not be sealed this year, according to a senior banker. “They have announced deals that likely will not be completed,” the banker said. HNA could not immediately be reached for comment.

Over the past two years HNA, which has its roots in the airline industry and bought a Chinese financial services company Yisheng Financial Services Holdings this year, has announced $33bn in cross-border acquisitions. Earlier this year, it agreed to pay about $6bn for Ingram Micro, a US-based software distribution company. Last month, it said it would pay a similar sum for a 25 per cent stake in Hilton Worldwide Holdings, the US hospitality group. The completion of both of those deals, along with several others, is still pending.

Anbang Insurance has been flagged by some banks as a potential risk when offshoring cash for acquisitions. Anbang’s attempt at a $14bn buyout of US group Starwood Hotels and Resorts came crashing down after running into regulatory troubles in March. The same month it agreed to buy Strategic Hotels & Resorts, another US group, for $6bn.

Shopping centre developer Sanpower Group has bought up a number of foreign assets over the past three years, including House of Fraser, the UK retail group, US novelty gadget maker Brookstone and Israeli healthcare provider Natali. Late last year, it agreed to buy New York-listed life sciences company China Cord Blood for $1.4bn.

Regulators have already tightened the channels for offshoring capital for deals, according to lawyers familiar with cross-border transactions. One Hong Kong-based lawyer said that Chinese regulators such as the State Administration of Foreign Exchange had recently increased the time it took to process applications, effectively killing some time-sensitive deals. In some cases “they don’t reject the application, they just don’t respond”, the person said.

Beijing battles to close capital flight loopholes

Posted on 29 November 2016 by

Getting money out of China has always been a challenge, so much so that some enterprising individuals have experimented with smuggling fossils to sell on the international black market for cash.

Most people have discovered that financial transactions involve less heavy lifting, although they are not always simpler. The long list of roundabout ways to move money out of China keeps evolving, as regulators constantly find and close loopholes.

But a move by four agencies this week to regulate overseas mergers could put a stop to a favoured channel for moving vast sums out of the country. A series of eye-catching overseas purchases by Chinese companies this year has raised suspicions of capital flight, and helped weaken the currency.

“The reason is to allow the market in the future to reflect real economic activity and not underground or grey transactions,” said Zhao Xijun, deputy director of the Finance and Securities Institute at Renmin University.

Chinese overseas direct investment has soared for legitimate reasons: excess industrial capacity constructed in China over the past decade means that margins are thin, and well-run businesses in Europe or the US with stable albeit low returns are seen as a valuable hedge. China’s sudden emergence as the world’s largest oil importer, biggest consumer of most other commodities and producer of half the world’s steel or aluminium has required securing mines, oilfields and infrastructure abroad. 

But large transactions that defy logic and complicated payment structures that include layers of consultancy fees are often an indication that fleeing capital has bundled itself into the deal. 

Meanwhile individuals and smaller companies have had to be content with more creative means of egress. China is only slowly opening legal channels for legitimate profits to be moved across its borders, meaning its capital controls awkwardly conflict with its status as the world’s largest trading nation. Since the 1980s, those who had the connections to operate shell companies abroad have made a profitable living settling trade invoices and meeting other business needs.

When the Chinese economy is booming, moving money in becomes as difficult as moving it out during slumps. A craze for over-invoicing imports from Hong Kong has replaced the rampant over-invoicing of exports that peaked in 2013.

The most recent hole to be plugged was the practice of buying millions of yuan in insurance policies in Hong Kong, an option that Mr Zhao of Renmin University calls “investment under the cover of trade in services.” That channel was abruptly shut this month by China Unionpay, the state-backed bank card monopoly. “If you buy a few yuan worth of insurance to go travelling that’s one thing. But millions of yuan in insurance when you yourself are not even in Hong Kong? That’s an investment,” he explained. 

That follows a crackdown on junket trips to gambling haven Macau, long a favourite method of moving out money acquired corruptly. Gamblers could deposit money in the mainland then cash out their chips in Macau — or, in a more complex variation, invest their winnings in manipulated boiler-room stocks in Hong Kong.

Other popular channels have included the online currency bitcoin, which can be purchased in China and sold for another currency in a foreign country. And some jewellery stores allow expensive pieces or gold to be purchased in the mainland and sold back in Hong Kong — or vice versa, for those who need to move money in.