This story is syndiated. source: Zerohedge
It has been posted verbatim in order to lock it into the steem blockchain for posterity

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Officially, China has maintained quasi capital controls for years: on paper no individual is allowed to move more than $50,000 out of the country in any given year while Chinese companies can exchange yuan for foreign currencies only for approved purposes.

Unofficially, China's capital controls had been skirted for years, leading to massive capital outflow from the nation over the past decade, leading to such aberrations as massive luxury housing bubbles in places such as Vancouver, London, New York and San Francisco, and seemingly middle-class Chinese politicians and oligarchs sporting Swiss bank accounts funded in the hundreds of millions (or billions), and here in chinese.

In fact, as we detailed in 2017, Beijing has an interesting way of dealing with capital outflows. While they closely monitor many methods, they don’t actively pursue shutting them down. They often watch from afar, and if capital reserves aren’t impacted, or their reputation isn’t damaged, they allow them to continue. The PBoC announced in 2017 they were going to deploy a massive anti-money laundering framework, designed to further halt capital outflows. As we said at the time, we’ll have to see if they were serious, or if this was just to win reputation points with international countries.

Well, two years later, we may have the answer. After an apparent lull in outflows, potentially driven by the reforms cracking down on capital flight, there are signs that China is facing an exodus of cash once again...

Amid all the headlines about China's surplus with US and the ongoing trade tensions, there was a message hidden in China's trade data...

It is that capital outflow probably accelerated significantly last month. It's a reminder of why the PBOC would probably be reluctant to let the yuan decline significantly. That would encourage even further outflows and risk a vicious circle.

While China's total imports fell 7.6% in dollar terms from a year earlier, its purchases from Hong Kong surged 106%.

Critically, Elsa Lignos, global head of FX Strategy at RBC in London, notes that this outlier resembles the jump in 2015-2016 when mainland companies used inflated invoices to take money out of the country.

The timing of the sudden shift is telling as it coincides with a lagged reaction to a sudden devaluation - just as we saw in 2015/2016...

The logistics of the over-invoicing scam are extraordinarily simple - Mainland Chinese will 'overpay' for goods or services delivered from a Hong Kong merchant with a pre-agreement that the Hong Kong-based 'exporter' will - for a fee - allow the mainland Chinese 'importer' to have access to his cash but now outside of China's government-imposed firewall controlling capital flight.

And the last time this occurred at this kind of scale, it sent Bitcoin from $200 to $20,000...

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My comments

• I think it is undoubted that #bitcoin, and other cryptos played a role in the exodus of capital from China in 2017.
• To what extent it is impossible to ascertain. Was it pivotal? Nobody can definitively say. It is like asking to identify the pebble that started an avalanche after the fact.
• The more crises that "bubble over the edge" all create a net positive force pushing toward crypto, I have no doubt of this.
• I think that the fundamental tech under #bitcoin has reached a point where it could handle the spill over from a global economic shock. In 2017 it was clear it was not ready (think the hard fork that created BCH out of the scaling debate)
• Chinese are inventive and smart people. There are heaps of them, and they are gamblers in heart - adopting #btc or some other #crypto to move funds out of china easy to imagine.
• But there are limitations to this:
• There has to be a seller for a chinese to buy crypto. These sellers must have a way to close the loop of the trade and exit out of their Yuan positions. This will be a natural inhibitor, but may push the local price very high in Yuan and create creative arbitrage opportunities, most likely for corrupt officials able to move funds out of China legally
• Trade war, and other geoeconomic pressures are all pushing in the same direction - this direction
• Could this be a matter of when rather than if?
• Could this play a complimentary role to the Russian story?

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As I said above, this article is syndicated without the notification of the author, I have taken the open source liberty to republish it to the only platform from which it is impossible to delete for posterity.




As always guys, leave comments, and have fun.

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Disclaimer: This post is not financial advice. Before investing any funds do your own research and make your own decisions. Cryptocurrencies are highly speculative.
And finally: Do not invest money you are not comfortable losing.

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