Sunday, September 16, 2012

Why I'm Bearish on the Chinese Yuan

[This article isn't really about EB-5 or immigration; rather, it is one of my occasional detours into tangential subjects which are closely related to foreign direct investment in the U.S.  Just humor me....(-;]

The global financial world, for the most part, remains very bullish on the Chinese currency, commonly known as the "yuan".  Through purported "loosening" -- a process where China's all-controlling central bank trickles a bit of free market freedom into the artificially-priced currency -- conventional thinking in currency circles would lead one to believe that it will rival the dollar as a global currency sometime soon.  Before I tell you why I don't believe that can happen, let's take a Wiki Moment to explain the yuan:

The yuan (play /jʊˈɑːn/ or /ˈjuːən/; sign: ¥; code: CNY; Chinese: yuán [ɥɛ̌n] ( listen)) is the base unit of a number of modern Chinese currencies. The yuan is the primary unit of account of the Renminbi.  A yuán (元) is also known colloquially as a kuài (块 "lump", originally of silver). One yuán is divided into 10 jiǎo (角) or colloquially máo (毛 "feather"). One jiǎo is divided into 10 fēn (分).

Got that?  Quiz at the end, you know...(-;

Since there are about 1000 online blogs by qualified experts each of which explains in great detail why the yuan is going to take over the world, all written by men and women who understand currency markets infinitely better than this immigration attorney, why am I even writing this, you ask?  Two reasons:
  1. Because my foreign investors in Asia -- Chinese and otherwise -- have educated me from a perspective which is not what the People's Bank of China wants the world to believe and...
  2. Because I believe that Foreign Venture Capital ("FVC", an acronym which is gaining favor and which, based on a Google search I just did, I appear to have popularized if not created!) will increasingly flow into the U.S. from China, resulting in rich inbound resources for my U.S. developer clients AND for a shakier yuan on a global scale.
Just last week Reuters in Shanghai reported that the People's Bank of China continued its trend of fixing stronger yuan midpoint against the dollar for the third straight trading day, "with spot prices posting their strongest close since late May following a dramatic overnight plunge in the dollar index."  The article mentions that "Chinese leaders, facing intensified concern that the domestic economy is having difficulty weathering sustained weakness in its exports markets, have said that Beijing will take steps to support exporters, which many interpreted as an official endorsement of a weakening trend in the yuan."  Simulataneously,  Guo Jianwei, deputy director of the central bank's monetary policy department, said the yuan's yo-yoing "had reduced the incentive for speculators to go long on the yuan on the assumption the only direction it could go was up."  But here's the problem: while the People's Bank of China can mimic the Fed, unlike the Fed, the PBC is there only to implement the will of the Government of China.  There is no voice for the private sector in China's management of its monetary policy, PERIOD.

Although the bulk of the aforementioned online commentary is a servile repetition of what the Chinese Central Bank wants the world to believe, cracks are appearing.  On August 28, the Wall Street Journal published a telling article about China Construction Bank, the country's 2nd largest in assets, which has seen a vast rise in nonperforming loans and has rolled over 8 billion yuan ($1.26 billion) in just first half of this year.  I'm not money trader, but does that sound to you like a currency ready to export?  The truth is that the chaos of the Euro, still undefined and very volatile for the foreseeable future, is the main reason the West is buying into this new "globalization" of a tightly-regulated currency whose leash can be summarily tightened just as fast or faster than it has been loosened.    (Moreover, China funneled over $20B into Europe the first half of this year, much to their concern and chagrin.)  The second reason we in the West buy into this "yuan as dollar/euro" bit is the sheer economic might of China as the world's major production powerhouse. 

I've told you about Mr. Bo's Wild Ride and the various other factors which have affluent Chinese extremely nervous and looking abroad more and more.  And I  haven't even gotten to tell you about this past weeks "Now you see me, now you don't" disappearances/reappearances of China's presumed next leader, Xi Jinping, a Chavez/Castro-like set of maneuvers which has China's business leaders wondering what on earth is happening even as the most significant and unusual change in party leadership looms just months ahead.

For now, I'd hang on to my U.S. dollars if I was a currency trader.  The short term gains smell more like the Facebook public offering, a greed-driven, wheel-and-deal situation which is the operational opposite of the climb of the mighty Apple.  The world is still reeling from the revelation as to the UK banks' hijinks in manipulating the Libor; compared to the absolute governmental policy driving the valuation of the yuan, the Libor scandal barely registers in terms of global currency manipulation.

China has much to offer the world in terms of productivity and manufacturing leadership, but the U.S. manufacturing sector -- led by the stunning, yet-unnoticed cost reductions in advanced robotics which allowed President Obama's auto industry bailout to result in a happy ending (who knew??) -- will be giving China a run for its manufacturing money in the coming decade.  Perhaps one day the yuan will be akin to the U.S. and Canadian dollar, to the pre-chaos Euro, or to the pound sterling.  But that day is anywhere but near.

Observations: 36,000 Feet Over Kazakhstan

At 36,000 feet, 2 hours from Lahore.  Severe clear skies and staring out window for the last hour as we’ve turned SE over Kazakhstan, then Uzbekistan, and then Kyrgyzstan. Nothing but rolling dunes and bone dry flatlands. I mean nothing: not a shack, not a vehicle, not one tree, not a sign of human civilization, just a surreal brownish-gray moonscape which reminds me of the history, tribalism, and isolation of the peoples of this elusive part of the world.

Finally: a settlement of one large building and 6-7 small ones, connected to who-knows-where via a razor thin road stretching forever southwest into the endless plains.  I wonder who lives there and why?  Military outpost?  Probably.  I wonder: are they looking up at the jet, themselves wondering:  "who goes there and why?"...

Friday, September 14, 2012

EB-5 Extended 3 Years by House, on President's Desk!

Yesterday, September 13th,  the U.S. House of Representatives passed S. 3245 (412-3) – providing in part a three year re-authorization of the EB-5 Regional Center Program through September 2015.  (As I told you back in August, the Senate passed the bill on August 2nd.)
 Now that both chambers of the U.S. Congress have approved the extension, it goes to the White House for President Obama's signature.  Here's what this means to EB-5 investors:

  1. Although others online are reporting that the President is expected to sign it into law this week, a former State Department colleague who works in the White House says not to hold our breath:  the violence in the Middle East means their energies are on other priorities.  That being said, I would say that it is virtually certain that since the current legislation expires on the 30th of September, the President WILL sign before that date, ensuring uninterrupted continuity of the EB-5 program
  2. Although we had HOPED that this time the so-called "Pilot Program" would be made permanent, it is easy to understand that with the election looming, engaging that option is not realistic.  We'll take the three years! 
  3. Based upon statistical EB-5 usage trend, Sam Udani of ILW and I both believe that this fiscal year of 2013, which begins on October 1, 2012, will be the first year EB-5 numbers run out.  (Remember: it's not just the investor who counts toward the 10,000 members do, too.)
The bottom line is that we are full steam ahead on EB-5 AND that those of you on the fence as far as investing need to get busy and lock up the last remaining Lake Point Capital Partners EB-5 slots before they are gone!!

P.S. answer is YES, I flew out of Pakistan the day before the violence began and am in Miami safe and sound, thanks for your concern!