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Signs of China (5): Tightening the Screws on China’s Foreign Reserves

Jeff Wang, November 8, 2018


The Chinese government has been gradually tightening its foreign exchange controls to the great detriment of enterprises and citizens, as well as the country’s economic vitality. What are the reasons for this heavy regulation, and what does it tells us about the economic and political state of China?

Over the last two years, members of the Chinese middle class have found it increasingly challenging to access foreign exchanges or make international remittances.

Ms. Zhang (张女士), a Chinese woman who had immigrated to the United States and who declined to disclose her full name, returned to Beijing this October to sell her apartment. However, the process of sending the money to the U. S. has proved a daunting experience.

“I’m still stuck here waiting,” she said. “I see exchange rates for the dollar get higher every day, and I think about how much I’m losing.”

The obstacles that Ms. Zhang faces have been commonplace in China after the authorities started tightening up on foreign exchanges in the second half of 2016.

In January 2017, the China Foreign Exchange Administration announced new rules that, in addition to maintaining the $50,000 per person limit on foreign exchanges, required purchasers to fill out a form, the “Application for Foreign Exchange Purchase” (个人购汇申请书). Additionally, purchases of foreign exchanges could not be used for buying real estate or making investments in securities overseas.

This January, the Foreign Exchange Administration also stipulated in its “Notice on Regulating Large-Scale Cash Withdrawal Using Bank Cards While Abroad” (《关于规范银行卡境外大额提取现金交易的通知》) a 100,000-yuan limit on overseas withdrawals when using a Chinese-issued bank card.

In June, the daily limit for Chinese citizens to withdraw foreign cash deposit from bank was reduced to $5,000 from $10,000. Many banks decline transaction requests by saying they lack sufficient foreign cash.

On October 10, the government issued its trial version of the “Anti-Money Laundering and Anti-Terrorism Financial Management Measures for Internet Financial Institutions” (《互联网金融从业机构反洗钱和反恐怖融资管理办法(试行)》). Per the Measures, customers who make trades with online financial institutions in excess of 50,000 yuan or foreign money worth more than $10,000 must have their transactions reported to the government.

As Beijing tightens the financial screws, Ms. Zhang has found herself being given the short end of the stick. “A lot of people, including me, are looking for relatives and friends we can give our renminbi (yuan) to, asking them to use their quota to exchange as many dollars as we can. But after making the exchanges, we run into a huge problem: how to remit the money overseas?”

She said that in order to bypass foreign exchange controls, ordinary Chinese use the “ant move” method to incrementally transfer their exchanges.

In addition to controlling foreign exchange transactions by individual citizens, the authorities also aim to limit capital movement on the part of private enterprises. Hu Liren (胡力任), a private entrepreneur living in the United States, said: “At present, China’s [private enterprises] foreign investment has basically stopped. Although there’s no law banning it, it has in fact stopped, because foreign investment requires a process, which in turn depends on government approval.”

Such policies started in 2017. In the first half of last year, China’s foreign direct investment fell by 40 percent, the first time since 2015 that it has decreased so sharply.

An extreme example is that in 2017, the Chinese government obstructed Wanda Group in the process of making a large-scale overseas merger and acquisition. The China Banking Regulatory Commission prohibited large state-owned banks from granting loans to Wanda for overseas M&A projects. At the same time, the authorities, making reference to private enterprise groups such as Wanda and Anbang, and forced them to sell their overseas assets and transfer the funds back to China.

The Chinese government has also used administrative measures to delay the withdrawal of foreign capital. In 2016, Deutsche Bank sold more than 3 billion euros of shares in China’s Huaxia Bank in China, but it took nearly a year before the money could be moved out of the country. In September of that year, when a large Japanese economic delegation visited China, its members made direct complaints about the procedural obstacles that Japanese companies faced when trying to withdraw capital.

The impetus for the rapidly tightening bureaucratic measures comes from the serious loss of foreign exchange capital in China in the past few years. According to the Chinese Academy of Social Sciences, during the two-year period from 2015 to 2016 — when losses of foreign exchanges reached a peak —  capital outflows recorded in China’s international balance sheet reached $1.28 trillion.

It is a market truism that private enterprises and individuals convert their renminbi assets into U.S. dollars and transfer them abroad. This is the main reason for China’s capital loss. Ye Zhao (叶昭), a former finance journalist who lives in the United States, described four grades of capital outflows:

“Once a family makes a few million, it first sends its children abroad; if they make tens of millions, the whole family will emigrate. The ones with hundreds of millions will set up business overseas. If billionaires are leaving China, that means their decisions have are political, and it has become too difficult for them to do business in China.”

It can be said that entrepreneurs and common people have concocted brilliant schemes to transfers their assets abroad. In addition to the aforementioned “ant move” adopted by members of the middle class, private enterprises have funneled large amounts of funds out of China chiefly by means of foreign investment and “underground money houses.” The two giants, Anbang and Wanda, took out loans from Chinese banks and used the money to buy up large amounts of overseas assets.

Ye Zhao said: “I have been in touch with these entrepreneurs. Speaking directly, they told me that one of their motivations is to explore business opportunities that might be available overseas, and the other is to have an escape route in case they are implicated during the investigation of some corrupt official.”

Ye Zhao’s words point to a fundamental dilemma among private enterprises operating in China. Since the marketization of the economy, China’s private enterprises have been carrying a so-called “original sin,” namely, that in order to flourish, they have no choice but to resort to illegal means including tax evasion and illicit collusion with officialdom. These illegal acts and their potential legal consequences have become the “Sword of Damocles” hanging over the heads of many entrepreneurs.

Recent changes in China’s political and economic situation have squeezed the private sector. Since 2011, China’s economy has been in a downward spiral, with domestic consumption sluggish and the market running out of space for expansion. Private enterprises face many obstacles such as high tax burdens and difficulty in acquiring loans.

Meanwhile, the trend of “the state advances, the private sector retreats” (国进民退) has become increasingly prominent, and the living space of private enterprises has been gradually eroded by state-owned enterprises. Earlier this year, someone even opined that private enterprises should be eradicated. The difficult environment has forced private companies to seek overseas investment.

The Chinese middle class is feeling likewise constrained. Kai Wen (凯文), who has long been engaged in business between China and the United States, believes that “whether in terms of education, clean air and clean water, and food safety, China cannot meet the demands of its emerging middle class, who want more security in their lives. So they have taken matters into their own hands.”

As companies and individuals flock to transfer their assets overseas, the PoBC intervened in the foreign exchange market in order to hedge capital outflows and maintain the exchange rate, which caused China’s foreign exchange reserves to fall from their peak of nearly $4 trillion in June 2014 to less than $3 trillion in January 2017. The sharp drop in foreign exchange reserves has set off alarms bells in the Chinese government.

Foreign exchange reserves are seen in China as a financial buffer for turbulent times. Although Beijing’s foreign reserves dropping below $3 trillion has little real impact on the Chinese economy, Cheng Xiaonong (程晓农), a U.S.-based commentator, believes that it will cause the government a host of other problems. “Part of China’s economic security is the demand for foreign imports. If China loses the reserves it needs to import goods, oil and food prices will present a massive dilemma. Therefore, retention of these three trillions is something the Chinese government keeps a close watch on.”

The loss of foreign exchange reserves would also lead to an accelerated depreciation of the renminbi and an increase in the chances of triggering a financial crisis.

Xia Ming (夏明), a professor of political science at the City University of New York, believes that, “the Chinese government is very worried that if there are insufficient foreign exchange reserves to serve as a protective firewall, the national currency might come under attack, the economy may experience turbulence, and that this could even lead to regime collapse.”

The decline in China’s foreign exchange reserves has directed public attention to their real composition. According to the China Administration of Foreign Exchange, as of March 2018, China’s foreign exchange reserves were worth $3.11 trillion US dollars, while China’s balance of foreign debt was $1.84 trillion. This means that more than half of China’s foreign exchange reserves must be reserved for repaying foreign debts, and are not true assets.

At the same time, about half of China’s foreign exchange reserves exist in the form of US dollar bonds, which are not easily realized at any time. This kind of bad composition has added to public concerns about Chinese foreign reserves.

Along with the decline of foreign exchanges, there is also the risk of brain drain, said Hu Liren. “China has reached a period of great risk in terms of human resources, and many people have emigrated. There are still many [talented] people in the country, but their children have emigrated. The Chinese government does not want these thoughtful and intelligent people to leave, but it is difficult to change the current political status in China.”

The Chinese government’s moves to exercise stricter control over its foreign reserves have greatly slowed the momentum of capital loss. According to a report released this February by the Washington-based International Finance Association, the net outflow of China’s capital in 2017 was 60 billion US dollars, just a tenth of the $640 in outflows recorded in 2016.

Chinese financial scholar He Jiangbing (贺江兵) has applied the Mundellian impossible trinity, of Nobel Prize fame, to explain China’s foreign exchange controls:

“Among the three ‘impossibles,’ the first is the independence of monetary policy, the second is the relative stability of the currency exchange rate, and the third is the free flow of capital. Of these, you can only choose two.”

In other words, China has no choice but to impose strong controls on foreign exchange if it wants to maintain independent monetary policy and a relatively stable currency exchange rate.

This kind of foreign exchange control is useful for settling financial balances, as well as keeping the exchange rate and domestic prices stable. But at the same time, the burden it places on some classes is considerable. “Who is to bear the consequences?,” said a rather emotional Ms. Zhang. “I feel it’s us members of the middle class who are being hit hardest by these strict foreign exchange controls.”

Foreign exchange control not only puts unreasonable pressures on enterprises and citizens: the Chinese government’s restrictions on foreign companies remitting profits to their parent firms have done tremendous damage to the country’s credit.

Jacob Parker, vice president and head of China Operations at the US-China Business Council, said last year that as the United States lowered its corporate tax rates, some members of the Council expressed their desire to quickly bring back the profits they received in China, so as to minimize the risk of capital controls.

The serious loss of foreign exchange reserves and the urgency of foreign exchange control reflect a tandem battle between the Chinese government and civil society being fought in the context of economic downturn and political totalitarianism. When the people lack trust in the government and want to avoid political and economic crisis, they vote with their feet. At the same time, the stubbornness of the political system manifests itself in high-pressure policies that grab civil liberties by the throat in order to maintain control.

Beijing’s foreign exchange controls give us but a glimpse of the reality in China, where political and economic pressures have been compounded by the U.S.-China trade war. Whispers of the “China collapse theory” are getting louder as the struggle between the Chinese state and the people heats up in different arenas and on different levels.


Jeff Wang is a journalist with Radio Free Asia’s Mandarin Service. The article was first published in Chinese on October 31, 2018. Follow him on Twitter @NeverlandWang0 



Signs of China (1), September 16, 2018.

Signs of China (2), September 22, 2018.

Signs of China (3), September 30, 2018.

Signs of China (4), October 8, 2018.



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China’s SOE Reform: Privatization or Taking over the Private Sector?

By He Qinglian, published: September 30, 2015


A flood of commentary has come out since the release of the long-anticipated Guiding Opinions on Strengthening and Reform of State-Owned Enterprises (《中共中央、国务院关于深化国有企业改革的指导意见》; “SOE Reform Program” or “Program” hereafter), jointly issued by the Central Committee of the Chinese Communist Party and the State Council. Some say that the Program is aimed at expanding and strengthening SOEs, while others say that the government is using market forces to promote privatization. That the same plan can yield two radically different suppositions is due to the Program’s strong “Xi Jinping quality”: It tries to combine the governance characteristics of both Mao Zedong and Deng Xiaoping and gain some advantage from both sides, thereby introducing a whole bunch of mutually contradictory formulations.

Key Points of the Program

The SOE Reform Program is 10,141 characters long and comprises 30 opinions in eight sections. It makes its purpose clear from the very outset: “SOEs are owned by the people as a whole . . . and are an important material base and political foundation for the development of our party and state.” This message infuses the Program throughout. Below are a few of its key points that must not be overlooked:

I. A highlight of the Program is the mixed-ownership system. Pundits have different opinions about this system based on their different understandings of the word “mixed.” Some (including foreign experts) see the word “mixed” and believe that the plan encourages privatization. But the original language in the Program says: “Actively encourage ownership diversification through introduction of other state-owned capital or various types of non-state-owned capital. State-owned capital may retain absolute or relative majority share positions, or it may be a [non-controlling] equity participant. Encourage the integrated companies to go public.”

The drafters of the Program seemed to worry that people would not fully understand their meaning, so they made a special point of noting in Opinion 2 (under the “General Principles” section): “Public ownership occupies the dominant position. It remains the basic economic system, the key point for consolidation and development. The non-public sector occupies a subordinate position.” “Upholding and improving the basic economic system are the fundamental requirements for deepening SOE reform that must be grasped.”

So, “mixed ownership” means that private companies can make cash purchases of shares in SOEs and become shareholders. But since the equity allocation ratio is based on the state-owned capital being the controlling party, private companies can only remain in a subordinate role, without any decision-making power or right to a say in matters. To prevent the public from getting the wrong idea, after releasing the program the Xinhua News Agency promptly issued a piece entitled “We Must Unequivocally Oppose Privatization” (《须旗帜鲜明反对私有化》).

II. The Program calls for fostering “market-oriented management mechanisms” while strengthening the Party’s leadership. Marketization is mentioned a total of 14 times, as if it were a theme of the Program. But in Opinion 24 it says: “Give full play to the key political role played by the Party organization within SOEs. Unite the goals of strengthening party leadership and improving corporate governance. Put a general requirement for Party-building work into the corporate charters of SOEs and clarify the statutory role of the SOE Party organization in the corporate governance structure.”

“Party leads everything” was the lifeblood of political and economic life during the Mao era. “Marketization” has been the theme of SOE reform ever since Deng Xiaoping took over. When Zhao Ziyang was General Secretary, he worked very hard to separate government from enterprise in the hopes that it would bring an end to the misadministration that came when the party managed companies. Originally, he even planned to build on his successes in this area and promote separation between the party and the government, but all of those efforts went down the drain after the events of June 4, 1989.

More than 60 years of Communist rule has shown that, under Party control, SOEs can use the Party’s support to grow large but not strong. This is because, growing strong means that a company increases its operational capabilities and management capacity, achieves a reasonable input-output balance, and gains market share through competition, rather than monopoly. These are precisely the things that it is impossible for Chinese SOEs to achieve.

III. Private companies with “great development and growth potentials” will become the primary target of SOE enterprise reform. Opinion 18 of the Program states: “Encourage state-owned capital to pursue various ways of investing in non-state-owned companies. Fully realize the capital operation role of state-owned investment and operations companies and use market forces to make quality investments in non-state-owned companies with great development potential and strong growth in the key sectors of public services, high-tech, environmental protection, and strategic industries.”

In other words, private companies with weak prospects can rest easy that SOEs won’t come knocking at their door. But if you’re a private company with high efficiency and good market prospects, the SOEs won’t even knock—they’ll come right in and purchase some of your shares or shell resources. There will be nowhere to hide.

 Why Do the Chinese Authorities Insist on Making SOEs Big and Strong?

You can tell what a government considers its key interests to be by looking at the companies it chooses to support. Take, for example, the acquisition of the largest American pork processor, Smithfield Foods, by China’s Shineway Group. With a total of 48,000 jobs at stake, including around 1,300 newly added jobs, local residents and governments all welcomed the deal and didn’t care that the new owners were Chinese.

In China, the private sector has long provided more employment opportunities for Chinese people than SOEs. According to official statistics for 2007, SOEs accounted for only 9.2 percent of industrial jobs, compared to 44.4 percent for the private sector. In January 2011, the All-China Federation of Industry and Commerce published a report indicating that small and medium enterprises accounted for more than 99 percent of all Chinese companies and accounted for more than 70 percent of urban employment and 90 percent of newly added jobs. In 2014, the State Administration for Industry and Commerce announced that sole proprietorships and private companies accounted for approximately 90 percent of all new urban jobs nationwide.

As foreign investors have begun to leave China, rural-based laborers are returning to the countryside in great numbers and more than half of all university graduates are forced to return home and live off their parents. In principle, the government ought to encourage development of the private sector and make raising the employment rate its primary consideration. So why do the authorities instead want to make SOEs, which account for comparatively fewer jobs, “big and strong” and adopt a “reform” strategy of “advance the public sector and diminish the private sector”? It is based on the following two considerations:

  1. As the economy has begun to slide, the Chinese government is facing an enormous financial dilemma. Private companies already represent the largest share among all Chinese companies when it comes to number of enterprises, assets, or main revenues, whereas SOEs are at a disadvantage on all accounts. But when it comes to the share of taxes paid to the state, private companies paid only 13.0 percent in 2012, according to official figures, compared to 70.3 percent paid by SOEs. As original sources of tax revenue increasingly dry up, the fact that SOEs are the main pillar of public finances is a sufficient reason for the government to make such efforts to support them. Whether or not SOEs can increase the employment rate is not among the government’s primary concerns. Premier Li Keqiang has already told the hundreds of millions of unemployed to follow a path of starting their own businesses.
  1. Restructuring and listing is the Program’s ultimate goal. Currently, there is a very high rate of debt among SOEs. At the end of July 2015, the average asset-liability ratio among Chinese SOEs was 65.12 percent, with the overwhelming majority of those debts owed to state-owned banks. This kind of relationship between banks and companies ensures that if SOEs cannot perform better, the state-owned banks will also collapse.

Over more than two decades, the main way that SOEs have gotten out of their difficulties has been to follow the brilliant idea of former Premier Zhu Rongji, who first allowed SOEs to raise money by going public. But today this idea seems to have lost its magic, and the national team appears stuck after being forced by the government to take part in efforts to save the stock market. So, the SOE Reform Plan is only an attempt to come up with a new tactic: have SOEs reform and, after mixing ownership with private companies, “encourage restructuring for going public.” After the assets have been restructured, the companies can go to the markets to float IPOs under a new name.

Does the Private Sector Want to “Mix” with SOEs?

This talk of a mixed-ownership system is something the public is familiar with, having first appeared in the 2014 Guiding Opinions on Deepening State-Owned Enterprise Reform (《深化国有企业改革的指导意见》) and the public consultation draft of the Guiding Opinions on Improving the Forms of Realization of Public Ownership (《关于完善公有制实现形式的指导意见》). But private companies are not in the least bit enthusiastic. In my earlier article, “SOE Reform: Government and the Private Sector Each See Things Differently,” I explained how private companies commonly perceive “mixed ownership” as a trap. They believe that if they take part in a mixed-ownership company, the private company can’t get a controlling stake so it’s very likely to be neutralized and, in the worst case, caught with no means to defend itself.

Wanda Group Chairman Wang Jianlin (王健林) told the Sina website: “If I’m going to ‘mix,’ the private company definitely needs to have a controlling share, or at least I want relative control . . . If the SOE has the controlling share, isn’t that the same as me helping out the SOE by giving it money? Wouldn’t that be crazy of me to do? I can’t do that kind of thing.”

In the article Mixed-Ownership: Six Big Risks for Private Companies Investing in SOEs (《混合所有制:民企参股国企的六大风险》), the author got several private entrepreneurs to share their opinions about the mixed-ownership system. The main risks they raised were: (1) the people with responsibility over state assets were not actually required to take responsibility; (2) concern about loss of state-owned assets will become a high-tension line used to keep private-sector shareholders under control; (3) state-owned shareholders are much more powerful than private-sector shareholders, making it difficult to cooperate; and so on. The point is that private companies cannot cooperate with SOEs, because for them “cooperation” means getting caught in a trap.

It’s clear that even if private companies don’t want to “mix,” the government is determined to “mix” them. Chinese private entrepreneurs have weathered many storms over the years, and as soon as they saw the government getting ready to position itself for mixed ownership, they started “investing overseas” in great numbers. As the saying goes: “Of the 36 stratagems, fleeing is best.” Since August of this year, Beijing has imposed stricter foreign exchange controls. Rather than targeting those small holders of foreign exchange, the controls are aimed at those rich businessmen who are trying to transfer their assets overseas. “Shorting China” is becoming an up-and-coming crime.

To put the private sector at ease and keep them from seeing the government as the wolf dressed up in Grandma’s clothes, Opinion 16 of the Program states: “Uphold the principle of implementing policy according to location, according to industry, according to company. Decide whether to remain independent, take a controlling share, or make an equity investment based on what is appropriate. Don’t make arbitrary matches between companies or try to apply mixed ownership across the board. Don’t set timetables; move forward when the time is ripe. Reform must be carried out in accordance with law and regulation, in strict accordance with procedure, and in a transparent and fair manner. Ensure protection of the rights and interests of the various investors in mixed-ownership enterprises and root out state-owned asset loss.”

The real problem is that the Chinese government has always treated law as something used to constrain the people. Private entrepreneurs know what’s really behind this kind of reform intended to “preserve the leading position of the state-owned sector” and “root out state-owned asset loss.” Under this kind of “reform,” just watch and see whether the private companies that SOEs have taken a fancy to can avoid becoming “Little Red Riding-Hoods.”


何清涟He Qinglian (何清涟) is a Chinese economist who lived in China before 2001. In her bestseller The Pitfalls of Modernization (《现代化的陷阱》), she argues presciently that, as the power of local governments grows, officials who have favored reform would come to oppose further reform because it would limit their ability to trade power for money and money for power. The book was banned in China, Ms. He was forced into exile. In 2006, she published China Shrouded in Fog (《雾锁中国》) which studies how the Chinese government manipulates and, to some degree, controls overseas Chinese-language media. Ms. He lives in New Jersey with her family.



What’s the Murderous Intention Behind “Don’t Let Li Ka-shing Run Away”?, Xiao Zhonghua, China Change, September 19, 2015.


中文原文《何清涟:国企改革方案的风,姓私还是姓公?》, translated by China Change.



What’s the Murderous Intention Behind “Don’t Let Li Ka-shing Run Away”?

By Xiao Zhonghua, published: September 19, 2015

“Everyone understands that, in China, the real estate business is closely entwined with power, and it has no way to succeed without the backing of political connections. Therefore, wealth generated from real estate is not wealth generated completely from the market economy. [He] can’t exit just because he wants to.” – Luo Tianhao, Don’t Let Li Ka-shing Run Away


Li Ka-Shing (李嘉誠)

Li Ka-Shing (李嘉誠). Photo:

An expert at Xinhua News Agency’s “Outlook Think Tank” (瞭望智库) recently published a brilliant essay entitled “Don’t Let Li Ka-shing Run Away.” This piece has caused quite a stir in public opinion in China and beyond. As an economist who understands a thing or two about how economics works, I lament the woeful standards at Chinese think tanks and can’t imagine how such a low-quality think tank can influence and undermine China’s political and economic policy decisions. I also can’t help but speak a few words of conscience on behalf of Li Ka Shing, China’s wealthy, the Chinese economy, and China’s proletariat.

I. Who Is Running Away and Why?

Is Li Ka-shing the only one [exiting China]? Of course not! There’s no question that foreign investors are pulling out in great numbers and that domestic capital is also fleeing on a large scale. Besides being the nature of capital to chase profits, it’s also beyond dispute there are also outflows of dirty money. However, not all of the money that is leaving China is dirty.

How do we judge whether money is clean or not? If we were to say that all commercial interests with political backing are dirty, then what about all of China’s state-owned enterprises? They’re all monopolies with strong political backing, so their money is the dirtiest of all.

Naked exchanges of power for money and vice-versa are of course violations of Chinese law, so you can just launch legal proceedings and carry out investigations. If you find political rent-seeking or graft, you can make arrests, hold trials, and confiscate the illegal proceeds. Those sorts of people couldn’t run away if they wanted to, since they can always be captured and brought back, can’t they? The whole world is opposed to serious corruption and economic crimes. Aren’t we always having people arrested and brought back to China?

But isn’t it brazenly ridiculous to say that, because Li Ka-shing was a real estate developer in China and China’s real estate market “works so closely with the authorities” that you can’t get anything done without “political resources,” therefore he can’t “come and go as he pleases”? No matter what you do in China, can you get anywhere without official approvals? With the possible exception of North Korea, China is the hardest place to do business because you can’t get permission to operate or access to markets without political ties. This has been especially true over the past two decades or so. What do you think all those myriad administrative reviews and approvals are for? How did it get to the point when a new government wants to greatly streamline administration and decentralize power, there are suddenly millions more administrative reviews and approvals?

How can you pin the faults of the political authorities on the people doing business in China? You rapaciously expropriate from them while they’re in business. Then you don’t permit them to spend their hard-earned cash, so that they lack the freedom even to put their capital in play?

When your governments and officials want to get rich, you make some property deals. You make these deals without the least bit of moderation, coaxing, tricking, or forcing developers into doing the deals. Then, when those deals run into trouble, it all becomes the developers’ fault?

For many years, local officials have described their governments’ so-called investment policies with a very vivid saying: “trick-hold-chew” (or PBK for 骗、抱、啃). First, you trick them into coming. Then you hold on to them for dear life. And finally you chew them to death. Isn’t this a realistic portrayal of how property development has worked in China, along with all sort of other industries?

You shouldn’t use your power in such willful and capricious ways! When power is used too willfully, business will suffer. Today’s businessmen, no matter whether they represent foreign capital or domestic capital, are all starting to flee. That’s because the authorities are acting too capriciously. The terrorist methods used in Chongqing under the guise of “singing red songs and fighting organized crime” led thousands of business leaders to flee abroad overnight. Isn’t this enough of a lesson for you?

I’m guessing that the most important reason why businessmen—especially China’s own businessmen—are pulling out of China is not because they’re pessimistic about China’s economic prospects. Rather, it’s because they have no confidence in the direction China’s political and economic policies are headed and there’s a spreading fear of the authorities.

In fact, our political and economic policies swing periodically from left to right, and from right to left, with no one able to make head or tail of things. This is not good. I don’t think it takes any great wisdom to understand that when people are uneasy, change is inevitable.

II. Why Won’t You Let them Run?

Are you trying to attack the local landed gentry and divide up their land, like during the period of land reform? I sense that, deep down, that’s what you want to do, and you’re accomplishing to different degrees.

You’ve basically accomplished your goal already. The stock market collapse has basically destroyed the middle class, while the truly powerful and wealthy have emerged without a scratch. But I believe that’s not enough for you, so is it your next step to introduce “mixed ownership” reforms and use “public-private partnerships” to go down the old path towards communism, like you did in the late 1950s? I doubt I’m the only one speculating and worrying about this. Businessmen are all shrewd people—who can’t see that there’s something fishy going on here?

I don’t know whether or not Li Ka-shing is willing to let you “mix” with his companies, but I would never allow it. I’d rather run my company into the ground, close up shop, and go home, even though I know you’d never even have any interest in a small enterprise like mine. The simple reason is that I’ve observed your abilities and what you’ve done over the years, and I know the wolfish nature of “public-private partnerships” and what the inevitable outcome will be.

Rather than carrying out forward-looking reform of the existing system, you instead go backwards in time and loot the people’s wealth. This is not the correct path of a ruler—it’s an evil path, a road to ruin.

Don’t blame me for presuming to speculate about the “emperor’s intentions.” You don’t give a good explanation for the new “Guiding Opinions on State Enterprise Reform,” while at the same time sounding the battle standard of “Don’t let Li Ka-shing run away.” Did you really think people wouldn’t jump to conclusions about what you’re up to?

III. Preventing Them from Running Will Just Make Them Run Faster

You’ve always believed yourselves to be extremely clever and that your grip on power permits you to do whatever you liked. But let me tell you, as soon as this brazen slogan of “Don’t let Li Ka-shing run away” left your mouth, everyone could clearly see the murderous intentions lurking behind it. If they don’t run now, it’ll be too late for them! So, China’s wealthy will do everything in their power to flee abroad. If you don’t believe me, just wait and see!

Of course, you can try raiding underground banks and imposing strict restrictions on foreign exchange to block the rich from fleeing. But today China’s economy is already completely integrated with the world economy, and it’s not such a simple matter to block foreign capital from pulling out or domestic capital from fleeing.

And the currency wars are just about to break out, if they haven’t already. I dare to predict that China will definitely lose badly in the currency wars and that the Renminbi will suffer deep devaluation versus the US dollar. We’re talking an exchange rate of 10 or even more than 20 yuan to the dollar when all is said and done. Again, if you don’t believe me, just wait and see.

My prediction doesn’t require the intervention of hostile external forces or Soros-types. It’s based on recognition that the rich who hold 80 percent of China’s wealth have begun to grow alarmed at your threats and mistaken actions and have begun to flee abroad. Li Ka-shing is only one of them.

You, not others, will always be the source of your own ruin.

IV. Aren’t You Ashamed for Making Businesspeople Fulfill Government Responsibilities?

The Xinhua think tank’s brilliant essay said that entrepreneurs like Li Ka-shing ought to take on two great “unfulfilled missions” of “giving consideration to the people’s livelihood and giving back to the poor,” on the one hand, and “doing more good deeds and operating social enterprises” on the other. I’m truly dumbfounded to see such ignorant talk come out of a state think tank.

The mission of a company is to do business, earn profits, take care of its employees, and pay taxes—that’s it. Taking care of employees and paying taxes counts as “giving consideration to the people’s livelihood and giving back to the poor.” As to whether or not to engage in charity or operate social enterprises, this doesn’t count as a company’s mission; it’s only a moral choice and ethical act taken by a company when it’s capable of doing so. Please remember, ethics and morality have never been duties, let alone a mission. Rather, they’re ideals to be pursued, and sometimes people achieve the ideal and other times they don’t.

Governments, on the other hand, are duty-bound to “give consideration to the people’s livelihood and giving back to the poor,” as well as invest in charity and social enterprises. Government has both a political responsibility and a social responsibility to do these things. What do governments do with the taxes that they collect from companies and citizens? Companies and citizens use their tax payments to fulfill their political and social responsibilities, whereas governments use their economic policies to develop the livelihood, charity, and social enterprises that they’re entrusted to take care of on behalf of companies and citizens.

How can a government be so shameless as to collect taxes without fulfilling its responsibilities, instead talking big and pushing all these responsibilities on companies?

All of these increasing burdens are making it harder and harder to run a company in China. There are so many gaps in the social security system, so you keep raising the social security levies every year, shifting all the burden on companies. When there’s inflation, you increase salaries for civil servants, forcing companies to raise wages as well, so the burden of inflation gets shifted to companies, too. Taxes only go up, never down. Even if you don’t threaten them, under such serious economic conditions it’s impossible for private companies to bear all these burdens. They can’t continue on, so their only choice is to flee. At a time like this, if you’re still thinking about plundering private enterprise, there’s only own road left for the future and that’s to go back to a planned economy.

Of course, perhaps that’s just what you’re hoping to accomplish . . .


Xiao Zhonghua (肖仲华) is an associated professor at Wuhan University of Technology.



Li Ka-shing’s moves on China reveal good timing, WSJ, September 6, 2015.

Online criticism of Li points to break-up with leadership, South China Morning Post, September 18, 2015.


中文原文: 肖仲华《“别让李嘉诚跑了”暴露了什么样的杀机?》, translated by China Change.