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New Adventures in Capital Mobility

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epa01150223 Two men carrying goods to be recycled ride their flatbed tricycles past a red Porsche Cayman parked outside a high end housing complex in Beijing, China, 18 October 2007. Chinas economic growth is widening the gaps between the rich and the poor. By the government's own statistics, 20 million people in China still live in absolute poverty, and tens of millions more on less than a dollar a day, while a survey published last week found that the number of dollar billionaires had exploded to more than 100 last year from just 15 the year before. China's leader Hu Jintao announced in his speech on the first day of the 17th communist party conference, that the tax system would be reformed to redistribute wealth from the super-rich to the poor. EPA/DIEGO AZUBEL
epa01150223 Two men carrying goods to be recycled ride their flatbed tricycles past a red Porsche Cayman parked outside a high end housing complex in Beijing, China, 18 October 2007. Chinas economic growth is widening the gaps between the rich and the poor. By the government’s own statistics, 20 million people in China still live in absolute poverty, and tens of millions more on less than a dollar a day, while a survey published last week found that the number of dollar billionaires had exploded to more than 100 last year from just 15 the year before. China’s leader Hu Jintao announced in his speech on the first day of the 17th communist party conference, that the tax system would be reformed to redistribute wealth from the super-rich to the poor. EPA/DIEGO AZUBEL

Chinese capitalists are getting inventive in getting their money out of China.

But China’s experience has often proved that money will find a way to flow where it wants. In a post published on Sunday on Seattle-headquartered law firm Harris & Moure’s China Law Blog, Mr. Harris detailed his conversation with an adviser to a Chinese company. The adviser had called him essentially to ask Harris & Moure to help the Chinese company deliberately lose a lawsuit for a phony breach of contract that would result in a payout of $3.5 million, which the Chinese company would then send to the U.S.

The money, as it turns out, would be paid to entities in the U.S. controlled by the Chinese company itself.

Mr. Harris told China Real Time that the company, a privately-held Chinese manufacturer, wanted to pursue such a fake arbitration, rather than fake a simple legal settlement for the same amount of money, because it was concerned about convincing government regulators who have been closely scrutinizing offshore remittances.

“They wanted it to look really official,” he said in a phone interview. “Arbitration also moves quickly, so they could conceivably do it within three months.”

Mr. Harris said he got the call in the last two weeks, and it was the first and only of its kind he’s so far received. He said he altered the nationality of the adviser recounted in his blog post – the adviser was a Westerner, but not Australian – to shield the identities of those involved.

It became clear to Mr. Harris in his conversation with the Western adviser to the Chinese company that there wasn’t even a real counter-party in the U.S., where the Chinese company wanted to move its funds. “We would have helped to form this company that would have sued this Chinese company,” he told China Real Time.

Curious as to how China deals with these issues going forward, especially as large swaths of its wealthy class really sees the West as a more desirable place to live.

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  • Nobdy

    20 million people in China still live in absolute poverty, and tens of millions more on less than a dollar a day,

    I’m curious as to what the distinction is, exactly.

    Presumably to actually LIVE and not starve to death you need some amount of income or food benefits, so where’s the cutoff for absolute poverty if it’s below $365 annual income?

    Or are there literally 20 million people with ZERO income just scavenging off garbage and food from the wilderness?

    • Scott P.

      The current definition of extreme poverty is living on less than $1.25 per day (increased from $1), so they do appear to refer to the same thing.

    • Shantanu Saha

      Most people around the world who fall into this category are subsistence farmers. They are dirt poor, but through access to land they can usually produce enough to feed themselves and their families. If the crops come in. If they have enough hands (including healthy enough children) to bring those crops in. If no natural or man-made disasters destroy the crops, or bandits (normal or governmental) steal what they’ve stored away for emergencies.

      • Nobdy

        Don’t even subsistence farmers have at least SOME income from selling a small portion of their crop to have enough money for things like clothes, fertilizer, building materials to maintain their dwellings etc…?

        Remember, we’re claiming 20 million people are so poor they are BENEATH the people who earn less than a dollar a day.

        • Brett

          If they can’t make any income off their crops, they might do whatever odd jobs are available plus side work – not that it pays much in rural China.

          I suppose that’s at least a big improvement over what it used to be. I wonder how many of them are the older parents of folks who have gone to the coastal areas to work. I’ve read that’s pretty common for folks in the cities to have parents back home in the countryside, often taking care of their children.

          • DrDick

            My understanding is that this is very common and they rely heavily on remittances from their children working in the cities, as is true in much of rural Asia,

        • DrDick

          While they need some income, they can get most of what they need off the land itself. In much of rural China, houses are built of rammed earth or adobe bricks. Such wood as they need comes from local trees. The only fertilzer they likely use is green manure (cover crops plowed into the soil) and manure (both animal and human). Many will only own one, maybe two, sets of clothes, which they wear until they rot. Subsistence farmers do not need to buy much to survive.

          • Warren Terra

            To “survive” maybe not – but if they have kids, and they want those kids to have books? A computer? A phone?

            And what happens when they need medicine, or need new tools? Maybe a new draft animal or share in a tractor?

            I don’t claim to know anything much about the economics of subsistence farming. I have no idea how much you claim to know. But – even if only for survival in abject misery – your calculation seems to overlook predictable occasional cash demands.

            • Redwood Rhiadra

              To “survive” maybe not – but if they have kids, and they want those kids to have books? A computer? A phone?

              Survival is ALL they can do. That’s the definition of “subsistence” farming – there is *nothing* left over to do anything but survive – barely.

              And what happens when they need medicine, or need new tools? Maybe a new draft animal or share in a tractor?

              If they need medicine? They die. Draft animals? They don’t have any – all the labor is *human*. Ditto with tractors – not used with this kind of farming.

              Even the tools they use are very limited, and very primitive (hand tools only). Anything metal (as opposed to stone/wood) will probably be used for several generations. So yes, they *very* occasionally have to buy a plowshare or knife or something – but doing so on ten or twenty bucks a year is not impossible.

              It’s a very primitive – and very HARSH – mode of existence.

  • Barry Freed

    Another reason to move their money to the west is that the CCP has a habit of regularly disappearing or otherwise culling the billionaire class.

    • N__B

      Proving that there’s some good in every government.

    • Justaguy

      A Chinese billionaire dies every 40 days. Of course, 1,000 Chinese people who don’t have shit died in the dime it took you to read this comment.

  • Barry Freed
    • eh

      Hey, isn’t Germany trying a 94 year old Nazi these days?

  • Bitter Scribe

    Time for another revolution?

    • Rudolph Schnaubelt

      Where?

  • Latverian Diplomat

    $3.5 million is not a lot of money in capital mobility terms.

    Might the extrememly wealthy be happy to use methods like this to get enough out to set themselves up to live comfortably in the West, while leaving most of their working capital invested in China? They would be not dissimilar from some Western captialists in handling their wealth that way?

  • Brad Nailer

    The “Cayman”? As in “Islands”?

    Porsche is either monumentally tone deaf or monumentally doesn’t give a shit what anybody thinks about rich people having all the money.

    • Lee Rudolph

      Probably “cayman” as in “looks like an alligator or a crocodile but isn’t one”.

    • jmauro

      It’s a fancy Latin word for a crocodile like alligator, it’s normally spelled caiman though. Both the islands and the car are named for the same species.

    • eh

      It’s not a real Porsche, just a side piece to scoop up some Miata and BMW buyers.

  • J. Otto Pohl

    Speaking of shady movements of large amounts of capital this documentary on Glencore and Zambia is fantastic.

    https://youtu.be/WNYemuiAOfU

  • RobertL

    There’s a bit of controversy about the amount of apartments being bought by Chinese investors in Australia these days. There are anecdotes about new developments being marketed in China before they are locally, and Chinese buying 80% of new developments. Then, the story goes, they leave them empty most of the time because they are only there as a way of getting wealth out of China.

    There are foreign investment laws supposed to stop this. Some of them are motivated by the political need to keep home prices low enough for locals to buy them, and some of them are, of course, racially motivated*.

    * Australia has always had a huge amount of foreign capital invested here. It was the British at first and there is still a lot of British investment, which nobody ever seems to complain about. Chinese or Japanese investment seems to get people agitated, though.

    • Brett

      I’ve always thought they should tax the hell out of those. Put a 50% tax on foreign-owned housing valued at over $1 million/unit, and you’d be mostly soaking rich Chinese and other foreigners trying to cache money in the US in real estate.

  • Brett

    This is a bit off-topic, but since it’s on Southeast Asia –

    Here’s a really good essay from an NYT reporter on accountability in Southeast Asia. What made him despair was not that people weren’t reporting on abuse and misconduct – they were – but that nothing was changing in response to it.

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