In Shenzhen, a city in Guangdong near the Hong Kong border, the local branch of the PBoC has issued instructions to local banks to limit cash withdrawals. Individuals are allowed to withdraw no more than RMB 30,000 (about $4,000) a day, RMB 50,000 a week, or RMB 200,000 a month from their bank accounts.The limit for companies is RMB 100,000, RMB 200,000 and RMB 500,000 respectively.
The reason for this restriction is to slow down the flood of money leaving the mainland attempting to take advantage of the relatively lower share prices at which Chinese companies sell in Hong Kong.I think H-shares (Hong-Kong-traded shares) trade at roughly half the price of A-shares (Shanghai- or Shenzhen-traded shares).Of the RMB 195.6 reduction in deposits withdrawn across the mainland in the year to date, about half comes from Shenzhen, giving pretty good circumstantial evidence that this money is being withdrawn to be invested in Hong Kong.
I am not sure how effective these measures will be.It is pretty commonplace here that bank records are so weak that little information travels from branch to branch, and even less so from bank to bank.If you open two accounts at two different banks you can probably transfer half your money to one of those accounts legally and then legally withdraw the full amount permitted from each account.The only ones who won’t be able to do this are depositors who have too little money to afford the hassle and cost of opening two accounts, but I doubt they are the big source of speculation anyway.
One thing though, this is good practice for dealing more generally with bank runs.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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October, 2007
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