Chinese CD's

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Chinese CD's

Postby wshang » Thu Oct 27, 2011 9:51 am

While on vacation in China, I noticed that many of the banks sported a 1 year CD paying 5%. On a whim I decided to open an account and funded it with a small amount of cash. When I get back to the US, I can wire the funds to purchase the CD. The funds will remain denominated as US dollars, so converting back at term or rolling forward is not a problem. I spent a good deal of time understanding the terms and conditions, so there is little misunderstanding here. (no functional difference between US style CD's) I will be able to transact any future transactions online. Aside from the taxes which will need to be reported, does anyone have any thoughts as to why this might be a bad idea. Among the things considered is a sudden decline in relationships when funds of foreign nationals get frozen (I think unlikely) or default by the bank, (unbacked by the government, which I also think unlikely) . . . . . . what do BH's think about this kind of investment?
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Re: Chinese CD's

Postby sunspotzsz » Thu Oct 27, 2011 10:09 am

Are you sure that USD carries the same interest rate as RMB?

Besides, wouldn't it make more sense to convert it to RMB?

Anyways, that's what I have been doing. Converting my USD to RMB and put it in a CD. With rapid appreciation of Chinese currency and higher interests rate, it's been working out well.

I don't see much risk other than if Chinese government let RMB float freely, it may become volatile for a while.
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Re: Chinese CD's

Postby HardKnocker » Thu Oct 27, 2011 12:42 pm

Chinese CDs?

Are they insured?
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Re: Chinese CD's

Postby Starting Investor » Fri Oct 28, 2011 12:42 am

Which bank did you use?
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Re: Chinese CD's

Postby Valuethinker » Fri Oct 28, 2011 6:02 am

wshang wrote:While on vacation in China, I noticed that many of the banks sported a 1 year CD paying 5%. On a whim I decided to open an account and funded it with a small amount of cash. When I get back to the US, I can wire the funds to purchase the CD. The funds will remain denominated as US dollars, so converting back at term or rolling forward is not a problem. I spent a good deal of time understanding the terms and conditions, so there is little misunderstanding here. (no functional difference between US style CD's) I will be able to transact any future transactions online. Aside from the taxes which will need to be reported, does anyone have any thoughts as to why this might be a bad idea. Among the things considered is a sudden decline in relationships when funds of foreign nationals get frozen (I think unlikely) or default by the bank, (unbacked by the government, which I also think unlikely) . . . . . . what do BH's think about this kind of investment?


An FIDC insured bank account has a specific and legally binding obligation to repay a depositor's funds (although I believe they can unilaterally adjust interest rates). 80 years of history says the agency always delivers: a highly regarded part of the US government. Also the US has no peacetime history of exchange controls AFAIK.

You don't have that with a Chinese bank account.

There may be an arbitrage there because the de facto guarantee of the PRC is as good as the FDIC de jure one.

But there are some sets of outcomes where that might not be the case.

It turned out in the UK case that the Icelandic bank accounts were insured, but, by treaty, the first 16,000 or so of losses (to 32,000) were insured by the Icelandic Government. Which then went bust.

That's not going to happen to the PRC, presumably, but it's a measure of what can happen.

The other one that comes to mind was the Russian default. From memory, and this is part of what blew LTCM out, they defaulted on their *domestic* debts but not their foreign ones (or the reverse?). Surprising the heck out of people who were expecting default. Speculators lost billions.

Sovereign governments are difficult to rely on. The reason the US stock market has a high PE is investors have confidence in the SEC, the Courts, the rule of law and the protection against arbitrary measures and confiscation embedded in the US constitution, a nearly 300 year old democracy. Post 1932 the US became one of the fairest and most transparent markets in the world for the minority external shareholders of companies (and the debt holders)-- William Bernstein is very good on this.

In other words the Wall Street PE is the market's vote on the balance of power legislative-executive-judicial and the 'Rights of Man' or in this case the sovereign private property holder.
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Re: Chinese CD's

Postby Sulvar » Fri Oct 28, 2011 10:19 am

I would put this in the "if it sounds to good to be true, it probably is" category. The highest yielding 1 year CD's in the US are 1.1% or so. Why would a Chinese bank be able to offer a 1 year CD denominated in USD at 5%? This doesn't make any sense to me.
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Re: Chinese CD's

Postby wshang » Fri Oct 28, 2011 10:27 am

The US dollar denominated account pays more than the RMB denominated account 5.1% versus about 3.1%.

I actually opened two accounts, one at a private bank, Everbright and one at a government owned Agricultural Bank of China - 中国农业银行. There are some quirks, such as no personal checks, but overall it was relatively painless.

VT, thanks for the historical run down. There has been fears of banking collapse in the years prior to 2007 in China. I think the Chinese government stands by to do what is necessary to prop these banks up. Their sovereign wealth fund has stepped in, in the past to help those with weak loan portfolios.

My main worry is about default and differential treatment of foreign versus domestic investors.
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Re: Chinese CD's

Postby newbie_Mo » Fri Oct 28, 2011 11:04 am

Can you open an account in China even if you are not a resident there?
what's the exchange cost from USD to RMB?
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Re: Chinese CD's

Postby MossySF » Fri Oct 28, 2011 12:24 pm

Rates are high in China because inflation is high. A year ago, rates were just as putridly low as in the U.S. Starting about 6 months ago, banks have been offering 6 month CDs for 4%+ and 12 month CDs for 5%+. China government has been raising rates to try to keep the lid on inflation and housing.

Pretty simple -- you'd expect to see this anywhere in the world. Where it gets weird is the dual USD / RMB services. Because the government pegs the currency to the USD, residents can only convert a limited amount of USD to RMB each year. So after depositing $50K of USD as RMB, all further USD income they receive can only deposited as USD. This means a bank account in China tracks both USD and RMB sub-accounts. This also applies to credit cards. If you use a VISA card issued by a Chinese bank online, they use charge you USD. If you present it in person in China/HK/Macau, it is charged as RMB. So any online charges incur currency conversion fees ... except you can present USD at the bank to pay the USD balance on your credit card and avoid the fees.

What this means is there is a whole set of different rules for interest rates for USD versus RMB account. Maybe the bank needs more USD and they've reached their conversion limit or the conversion rates are bad from the China central bank ... so they offer USD bank CDs at higher rates. Or they're offering incentives for customers to avoid converting USD to RMB as bank branches can be penalized for exceeding conversion limits.

You can open an account w/o being a resident. You do have to do it in person. Other admin stuff like replacing an ATM card, replacing a bank book, changing passwords, etc. also have to be done in person as they will photocopy your passport's face page & latest entry page.

And I don't know about what kind of "FDIC-like" guarantees there are. There may be no guarantee at all. Banks are state-sponsored enterprises but the government can easily set any repayment policy if there is a nationwide banking crisis.
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Re: Chinese CD's

Postby ejvyas » Fri Oct 28, 2011 2:37 pm

My friends do similar things in Indian banks which yield 9-10% They call it Fixed Deposit (FD) out there. Its similar to CD. I don't have information about FDIC type insurance but big banks have been stable. And yes its because there is 9% inflation that saving accounts and CDs yield so high. You have to convert USD to local currency with minimal costs.
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Re: Chinese CD's

Postby sunspotzsz » Fri Oct 28, 2011 2:44 pm

wshang wrote:The US dollar denominated account pays more than the RMB denominated account 5.1% versus about 3.1%.


what?

Are you sure? Here is their link:
http://www.abchina.com/cn/PublicPlate/Q ... 4_1641.htm

I don't see 5.1%
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Re: Chinese CD's

Postby wshang » Fri Oct 28, 2011 10:02 pm

sunspotzsz wrote:
wshang wrote:The US dollar denominated account pays more than the RMB denominated account 5.1% versus about 3.1%.
what? Are you sure? Here is their link:
http://www.abchina.com/cn/PublicPlate/Q ... 4_1641.htm

I don't see 5.1%

That table definitely seems odd to me, not what was printed out for me, not what was advertised in the bank lobby. One of the reasons I opened two accounts is that it gives me more flexibility. Ever Bright has the 1 year rates I quoted. abchina.com is a little, but not that much lower, but definitely not the table referenced in the link. It takes 3-4 working days for a wire transfer to take place, so only until after Nov 1st will I be sure what rate is more favorable.

One of the things I wanted to do, was to establish a contact within each bank when opening an acount. Having met one bank rep in each bank, I will be able to have any ongoing questions answered by email prior to making a purchase. It cost essentially nothing to set up an account.
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Re: Chinese CD's

Postby MossySF » Sat Oct 29, 2011 2:00 am

There are 2 different type of "CDs" at ABC.

You can subdivide your account into demand "checking" and interest-paying time deposits. The time deposits, you get paid interest if you keep your money in that subaccount until maturity. You can move the money out at any time though in to demand checking if you're willing to give up the unpaid interest.

In a true CD, the money is moved out into a different account much like how it is in the U.S. The rates are much higher and there is no possibility for early withdrawal even if you want to pay a penalty.
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Re: Chinese CD's

Postby Valuethinker » Sat Oct 29, 2011 12:35 pm

MossySF wrote:Rates are high in China because inflation is high.


I wanted to thank you for such a thorough explanation of the Chinese banking situation.

No I don't think a Chinese, state owned bank will ever default. I believe however there could be circumstances where it would be difficult or very disadvantageous to get your money out, and these could be imposed unilaterally and suddenly.

If I wish to participate in the Chinese miracle, the Hong Kong (and even Taiwan & Australian) stock markets seem better ways to do this. (HK has a disproportionate weighting towards land/property plays, though, I believe).
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Re: Chinese CD's

Postby Valuethinker » Sat Oct 29, 2011 12:38 pm

ejvyas wrote:My friends do similar things in Indian banks which yield 9-10% They call it Fixed Deposit (FD) out there. Its similar to CD. I don't have information about FDIC type insurance but big banks have been stable. And yes its because there is 9% inflation that saving accounts and CDs yield so high. You have to convert USD to local currency with minimal costs.


I do not believe however that those are USD accounts? They are Rupee accounts?

It's not so long ago that India had a very stressed currency. India retains a high government deficit, serious internal political issues, and of course unstable (and nuclear armed!) neighbours.

This opens up the risk of periodic exchange rate crises.

Whilst Indian companies are in some areas world leaders, it seems better to get one's exposure to India via equities than via fixed income or cash. Then, even if there is a meltdown, many Indian companies are well diversified internationally or large exporters, and so hedged to some degree.
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Re: Chinese CD's

Postby Starting Investor » Sun Oct 30, 2011 4:35 am

Checked the largest foreign bank operating in China (HSBC), and one of the largest domestic banks (Bank of China). These are the rates they quote for 1 year USD deposits (website links below):

HSBC = 0.95%
Bank of China = 1.00%

And for 1 year RMB deposits its both ~3.5%.

Do you have any links of the rates you quoted? Thanks



http://www.boc.cn/en/bocinfo/bi5/201003 ... 88685.html

http://www.hsbc.com.cn/1/2/!ut/p/c1/04_ ... DEO0000000
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Re: Chinese CD's

Postby wshang » Mon Oct 31, 2011 7:19 pm

Here you can see the 1 year CD from Everbank:

http://www.amoney.com.cn/Foreign/7400.htm

You may need to put it in a translator to see it. Anyway, it pays 5.1%, but in the fine print, the bank reserves the right to keep the term to 6 months.
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Re: Chinese CD's

Postby wayz53 » Mon Oct 31, 2011 8:14 pm

Regarding the link wshang posted for Everbank, that is actually a financial product most likely bonds of some sort to yield 5.1% for 1 year duration, the rating for it is 3 stars (assuming out of 5) and it does protect the principle amount.

I just got back from China last week and was able to open a 5 year CD for 5.5% and 3 year CB for 5.1% (in RMB which imo is a good thing due to depreciating dollar). Anything the bank market as yielding 5% for 1 year is most likely financial product of some sort.

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Re: Chinese CD's

Postby German Expat » Mon Oct 31, 2011 9:42 pm

What are your fees for wiring the money in and out ? I only wired once to China and the fee was 25$ (Charles Schwab). How much will they charge you in China to wire the money back and can you do it remotely ?
Do you need to be a Chinese citizen or can you have a US passport ?
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Re: Chinese CD's

Postby Starting Investor » Mon Oct 31, 2011 11:00 pm

Wayz 53:

5.5% interest for a 5 year CD nominated in RMB seems standard. Similar to what Bank of China is offering (basically goes from 3.5% for 1 year to 5.5% for 60 months) for RMB nominated CD's.
http://www.boc.cn/en/bocinfo/bi4/201107 ... 44508.html

These rates a lot better than rates for USD nominated CD's (which the OP is talking about, and which as far as I found are only around 1% per year for real CD's). And I agree, CD in RMB are a nice "dollar diversification" besides the fact that interest is simply higher.


WShang:

As wayz53 mentioned, what you have signed up for is not a CD. It’s some kind of financial product. They can stop it at any moment when they don’t like or need it anymore to hedge their currency exposure, and also I believe they mention something like "5.1% interest maximum" (implying it could be less?). After 5 years in China, the most important thing I have learned here is never to go for such kind of fuzzy products offering 5% interest, instead of 1% interest for USD nominated "real" CD's all other banks are offering (see website links in my post above). But I do sincerely hope it works out for you!!

To get back to your original question in your first post. What I would worry about (besides paying taxes in the US which you can simply do, and freezing of foreign assets which is unlikely I guess) is the promise you "can do everything online". I found that that's all fine, but as soon as something changes or you want to change something, you are required to come to the bank with your ID etc. I think if you come to China annually this is less of a concern, but if you don’t plan to come much, I would be a bit nervous about relying on internet banking. That would be my main concern I guess. Second, but that is only for RMB nominated CDs, would be that you can only convert a certain maximum amout of RMB annually to USD so you have to be carefull not to put too much in a RMB nominated CD, but that is not an issue for you since you are not using RMB. Anyway, just my 2 cents for what it’s worth.
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Re: Chinese CD's

Postby wshang » Tue Nov 01, 2011 12:01 am

Starting Investor wrote:It’s some kind of financial product. They can stop it at any moment when they don’t like or need it anymore to hedge their currency exposure, and also I believe they mention something like "5.1% interest maximum" (implying it could be less?). I found that that's all fine, but as soon as something changes or you want to change something, you are required to come to the bank with your ID etc. Second, but that is only for RMB nominated CDs, would be that you can only convert a certain maximum amout of RMB annually to USD so you have to be carefull not to put too much in a RMB nominated CD, but that is not an issue for you since you are not using RMB.


Yes, there is a limit and that is $50k/person/year. I won't be reaching that limit for the foreseeable future. Your point about doing things in person is well taken. This RMB to dollar conversion can only be done in person or someone who is a son/daughter or father/mother.

In regard to German Expat's question, my cost should be $45 to wire, although BAC will reimburse up to $100/year me, costing me nothing as long as I keep it less than twice a year.
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Re: Chinese CD's

Postby Dandy » Tue Nov 01, 2011 11:59 am

I view China as the wild west. Things are changing fast, regulation and laws may not have caught up. I would avoid it.
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Re: Chinese CD's

Postby Lucio » Tue Nov 01, 2011 12:17 pm

wshang,

This sounds like an interesting way to lose money. It reminds me of the notes that Lehman sold in Hong Kong that were supposedly just like CDs, only better.

If memory serves me, the Chinese version of the US FDIC has never actually had to execute its mission; no failing banks have ever been rescued and, thus, it's more of a theoretical protection. (I can't remember or find a reference if the bond scandal of 1994 caused the failure of any protected banks. Maybe it did.)

Good luck.

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Re: Chinese CD's

Postby HongKonger » Thu Nov 03, 2011 10:46 pm

I see that Everbright has re-announced its plans to IPO as they need to raise sufficient funds to comply with the recently increased minimum reserves.
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Re: Chinese CD's

Postby HardKnocker » Fri Nov 04, 2011 8:37 am

I wouldn't touch Chinese CDs with a ten foot pole.
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Re: Chinese CD's

Postby Wind power » Sat Nov 05, 2011 9:43 pm

LOL,
As a side note, I still get a 5.20% CD rate from a bank here in the US....I tried to lock in in forever and a day when I locked in this rate in 2008...you could easily see the economic rumblings on the horzion....the bank in which it just matured said " I would not take it to that bank over there..they are being bought out" I shot back "so what, they are FDIC just like you clowns are and if the feds crap out on their end of the bargin then I will be just as poor as the rest of the 99% Americans out there...so who is broke when everybody is broke?"
The bank rep just looked at me....
But back to your orginal concept.... the idea of it not being secured is a bit troubling...If I was playing with 5% interest rates and it not being secured I wouls simply invest in a utility stock such as Duke energy and let it ride until rates got back to around the same percentage points...I would simply feel better about having may money stateside.
[Racist political remark removed by Mod]
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Re: Chinese CD's

Postby Valuethinker » Sun Nov 06, 2011 1:35 pm

Wind power wrote: Those creepy commies dont give me a warm fuzzy feeling, when it comes to investing in them....especially unsecured money


Ohh come on, really, in 2011....

'creepy commies' sounds like something out of the McCarthy era.

It's like the PRC calling the US 'Capitalist Roaders'.

One can question the whole issue of individual rights, political stability, private property in the PRC without reverting to some language that died in the 1950s.

What the PRC now is neither 'capitalist' nor 'communist'. A sort of 'state capitalism' in fact. It's certainly not a democracy either, but it's not Stalin's Russia.
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Re: Chinese CD's

Postby HongKonger » Sun Nov 06, 2011 2:49 pm

Political issues are not permitted when talking about the US - I don't see why this should be any different when referring to other countries. And there's certainly no need for the snidy adjectives.
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Re: Chinese CD's

Postby wshang » Sun Nov 06, 2011 3:11 pm

I hope this thread does not get locked for an insensitive comment. (Plead to moderator) The information is quite helpful and I never cease to be amazed by the depth of collective knowledge. (Thank you to all who replied so far.)

In regard to German Expat's question, you do not need to be a Chinese citizen to open an account, although from the policies in place there appears to be a deliberate attempt by the Chinese banking officials to prevent the inflow of "hot money" into the country. Any government's first responsibility is to its own constituency and right now inflation is high on most people's minds.

There was an interesting comment from the Economist (Oct 22, 2011, pg. 20), "Since the central government's explicit debt is low (about 20% o GDP) it can afford to bail out lower tiers of government and the banks they borrowed from. Because the banks have ample depositis, and savers have few other options, banks can also earn their way out of a hole by underpaying their depositors." Historically Chinese sovereign wealth funds have taken equity positions in weak banks, and I see this as nearly as good as the FDIC. It is my sense from talking with Chinese during my trip that many see few options for investing. Many are scared of the stock market and the housing market lending arm is being slammed shut by the government.

To me, 3%/year seems to be at the lower range of expected appreciation of the RMB/$USD, this seems to be a relatively safe and tax event free method of earning a little more on fixed income. Whatever additional a CD might earn is gravy from my point of view. I wish I knew of more ways a small investor could take advantage of say Euro/RMB differences without playing the Forex or Everbank.
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Re: Chinese CD's

Postby HongKonger » Sun Nov 06, 2011 3:24 pm

wshang wrote:I wish I knew of more ways a small investor could take advantage of say Euro/RMB differences without playing the Forex or Everbank.


What about Dim Sum bonds?
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Re: Chinese CD's

Postby MossySF » Sun Nov 06, 2011 8:42 pm

wshang wrote:I wish I knew of more ways a small investor could take advantage of say Euro/RMB differences without playing the Forex or Everbank.


Some US/Euro banks have relationships with Chinese banks where you can transfer money and convert to RMB at almost no cost. For example, Bank of America -> China Construction Bank and Wells Fargo (no fee for PMA accounts) -> Agricultural Bank. But it's not an automatic transfer ... somebody in China has to receive your money. So it only works if you're in China at the moment or you have a trusted relative there.
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Re: Chinese CD's

Postby veryseablue » Sat Nov 12, 2011 9:01 pm

Hi Wshang, here is a question for you. Is there any restriction/limitation as to the amount of funds transfering from China after the maturity. As I was told , there is a annual limit of US$50,000 per person. Correct me if Iam wrong. Thanks for any input.
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Re: Chinese CD's

Postby wshang » Sat Nov 12, 2011 11:28 pm

veryseablue wrote:Is there any restriction/limitation as to the amount of funds transferring from China after the maturity. As I was told , there is a annual limit of US$50,000 per person.

That is my understanding too. Of course there are other ways . . . you can withdraw money to spend in country, convert it in country to give to your family members to declare upon return to the US. There is also the Patriot act on this side and the new tax laws on declaration of interest.

There are English versions of online banking websites for Bank of China, EverBright, Agricultural Bank of China, China Construction Bank (I checked them out) and probably others. The security for the two I opened are greater than my US accounts. I would strongly recommend finding a branch where you can make the acquaintance of a bank officer who speaks English, unless you are fluent in Chinese. That way you can always call them when overseas.
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Re: Chinese CD's

Postby William Million » Sun Nov 13, 2011 1:34 pm

Keep in mind that Ally Bank is offering 1.89 5-year CDs FDIC-protected with no currency risk and very minimal penalty for early withdrawal (60-days interest). Ally might not be the best bank around, but FDIC-insurance cannot be beat.

In my case, I can't see how it's worth taking the currency risk for an extra couple of percentage points. I'll take my currency risk on the equity side (in emerging market funds) but I want predictability for fixed income.

What will you do if the bank runs into trouble and simply refuses to pay foreign account holders? In China, I doubt you'd have any recourse. This is a low probability scenario but why take the chance on the fixed income side?
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Re: Chinese CD's

Postby wshang » Sun Nov 13, 2011 3:00 pm

William Million wrote:Keep in mind that Ally Bank is offering 1.89 5-year CDs . . . . This is a low probability scenario but why take the chance on the fixed income side?

I understand your thoughts. My personal belief is we will continue to lose purchasing and asset value through progressive dollar depreciation. In other words is there is a significant chance the US will significantly devalue its currency in the years to come. I cannot defend against this except by owning foreign assets which I believe will appreciate - to my way of thinking ETF's like EEM or VWO. The RMB by consensus thinking will not devalue versus the USD. Those who bought Dim Sum bonds when the ETF's debuted in Fall 2011, took a bath. To me, this a relatively safer hedge against that.

You are correct about possible US-Chinese relationship changes, but my feeling is the Chinese will seek in the coming decades to make the RMB into a reserve currency in competition with the USD. To screw small people like myself would be counter to this eventual aim. Besides, the 3-5% annual depreciation is tax-free and a way for me to further diversify against dollar devaluation which damages my bond side holdings.
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Re: Chinese CD's

Postby William Million » Sun Nov 13, 2011 3:34 pm

I hope it works for you. However, just keep the 1997 Asian crisis in mind. An economy as strong as Malaysia's (light years ahead of China) saw its currency slip from 2.5 to 4.6 : dollar. Not saying this will happen but you should be prepared for worst-case scenarios.
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Re: Chinese CD's

Postby wshang » Thu Nov 24, 2011 11:57 pm

Last week I put about 0.75% of my net worth into Everbright Bank paying a three month CD paying 5.2%. It involved carefully reading the Chinese website (I ended up not trying to figure out if the English website was the same) and transferring some money to my relatives to convert into RMB, since I am not over there right now. Hopefully it will be a boring investment. Many thanks to many of you who took the time to lend advice and make suggestions.
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Re: Chinese CD's

Postby Starting Investor » Fri Nov 25, 2011 3:48 am

WShang,

Thought you would put it in a USD nominated account per your original post, why did you decide to go for a RMB one?
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Re: Chinese CD's

Postby wshang » Sun Nov 27, 2011 10:24 pm

Starting Investor wrote:WShang, Thought you would put it in a USD nominated account per your original post, why did you decide to go for a RMB one?

Gee, did I give that impression? The USD denominated one paid only 0.1% more, by the time it came to enter the order.
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Re: Chinese CD's

Postby Starting Investor » Sun Nov 27, 2011 10:35 pm

Well, that's the impression I got at least (emphasis added - I thought you were going for USD):

wshang wrote: When I get back to the US, I can wire the funds to purchase the CD. The funds will remain denominated as US dollars, so converting back at term or rolling forward is not a problem.


But agree much better to go for RMBs (higher interest, and diversification). I would do the same and really want to actually since I am living and working in Beijing for more that 5 years now, but I am not comfortable with RMB funds as I am nervous about converting back to EUR or USD later (I would have to be able to show the bank I earned the RMB here and paid taxes over it, and than there is a maximum amount you can transfer annually. Both rules can change at any time).

If you have a bank account in your own name, nominated in RMB, in China, how do you intent to covert back to USD later on?
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Re: Chinese CD's

Postby wshang » Mon Nov 28, 2011 7:21 pm

Starting Investor wrote:If you have a bank account in your own name, nominated in RMB, in China, how do you intent to covert back to USD later on?

I think it should not be a problem for the amounts I am doing. Here is a timely article about the Chinese government's intention toward convertibility. Hopefully investors similar to myself have interests aligned with the present regime.

http://online.wsj.com/article/SB1000142 ... ideo_Third
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Re: Chinese CD's

Postby dyangu » Mon Nov 28, 2011 11:09 pm

William Million wrote:I hope it works for you. However, just keep the 1997 Asian crisis in mind. An economy as strong as Malaysia's (light years ahead of China) saw its currency slip from 2.5 to 4.6 : dollar. Not saying this will happen but you should be prepared for worst-case scenarios.


China has bought over $1 trillion in US treasury to keep the RMB artificially low vs the dollar. If they ever want the RMB to go up, they can just sell that stockpile. The Asian crisis would not have happened if countries involved had that kind of USD reserve.

One thing you are missing is that many people on this forum are not US citizens and consider holding 100% USD to be an unacceptable currency risk. I personally have bank accounts in 3 countries and regret not getting enough out of USD before QE2 (USD is down something like 30% vs Canadian and Australian dollar).

FYI Chinese banks will deduct taxes on CD interest, unless you buy treasuries, which have much lower yields than CDs.
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Re: Chinese CD's

Postby Valuethinker » Tue Nov 29, 2011 9:01 am

dyangu wrote:
William Million wrote:I hope it works for you. However, just keep the 1997 Asian crisis in mind. An economy as strong as Malaysia's (light years ahead of China) saw its currency slip from 2.5 to 4.6 : dollar. Not saying this will happen but you should be prepared for worst-case scenarios.


China has bought over $1 trillion in US treasury to keep the RMB artificially low vs the dollar. If they ever want the RMB to go up, they can just sell that stockpile. The Asian crisis would not have happened if countries involved had that kind of USD reserve.

One thing you are missing is that many people on this forum are not US citizens and consider holding 100% USD to be an unacceptable currency risk. I personally have bank accounts in 3 countries and regret not getting enough out of USD before QE2 (USD is down something like 30% vs Canadian and Australian dollar).

FYI Chinese banks will deduct taxes on CD interest, unless you buy treasuries, which have much lower yields than CDs.


I take the point that the Renimbi is undervalued and that at some point that should correct.

However I am not sure bank CDs are a great way of speculating on that. Maybe they are (as and when and if the Renimbi revalues, the stocks of Chinese exporter companies will get hit, hard).

But we're a long way into the realms of FX speculation. Speculating what the Chinese will do, what the dollar will do, and when

The iron principle is match assets to liabilities as to term, risk and currency.

So if you need to spend money in Canada, Australia or China, by all means the most risk reducing thing to do is invest in the local currency.

Similarly if you plan to retire there, owning a property there is a good risk hedge.

But if you are going to retire in the USA, then most of your spending will be in USD. Historically a foreign currency weighting of 20-30% on your portfolio via equities has added maximum diversification benefit: more than that, you get more volatility with no more return.

The US has been written off before in my life time, and certainly things in the 70s domestically seemed much worse than they are now in terms of government action (COINTELPRO, wage and price controls etc.) and external threats (Soviet Union, Afghanistan, Iran Hostage Crisis, El Salvador etc. etc.) and domestic challenges (SLA, the Panthers, strikes, Vietnam war, civil rights riots) and economics (stagflation etc.). You would not have predicted the day in 1975 the Chancery Compound fell in Saigon that the USA had some of its best days before it-- it did rather seem like the communists would overrun all of Asia quite shortly.

So I am not ready, speaking as a non-USian and a critical friend of the US, to write America off so easily.

Nor speaking as someone who lived through the Canadian dollar at 1.05, the Canadian dollar at 60 cents, the Canadian dollar at near parity again, am I ready to pick the CAD as a 'safe haven'. Nor the AUD or NZD.
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Re: Chinese CD's

Postby wshang » Sat May 18, 2013 10:59 pm

Just as a follow-up, the Chinese CD purchases have been going well. Recently I purchased two and three year CD's for 4.125% and 4.675% respectively. Meanwhile the RMB has continued to appreciate to 6.18 from about 6.38 since writing this initial posting in Oct 2011. About a 3% increase or 1.9% annualized on the appreciation alone.

One sort of bad thing, happened though. I had to go to China in person recently as I stupidly put in the password incorrectly three times and had my account locked. Next time I will close the Windows and make sure my Caps Lock is off before doing that again!
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Re: Chinese CD's

Postby Ged » Sat May 18, 2013 11:26 pm

Currency diversification is interesting, but surely there has to be an easier way. Flying to China to reset a password is not efficient.

I think I'll stick to stuff like Vanguard's emerging market bond funds etc.
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Re: Chinese CD's

Postby Rob5TCP » Sat Aug 31, 2013 9:18 am

If you accept lower interest (when they run specials up to 2.5% on a one year) Bank of China is FDIC insured (though NOT for fluctuation in currency value).
I've a CD for the last 3 years and it has done well. There is a charge when converting currencies. Still, it has done fairly well.
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Re: Chinese CD's

Postby mickeyd » Sat Aug 31, 2013 1:24 pm

Personally I have a policy to never consume any food product that is from China. I would also be skeptical about Chinese CDs. I am too protective about my personal information as well as my cash.
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Re: Chinese CD's

Postby Rainier » Sat Aug 31, 2013 9:56 pm

mickeyd wrote:Personally I have a policy to never consume any food product that is from China. I would also be skeptical about Chinese CDs. I am too protective about my personal information as well as my cash.


Kind of rude, but I also tend to agree. Nearly a quarter of the people in the world eat it, and they live just as long as us.

Unless I had expenses in rmb I wouldn't buy them.
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Re: Chinese CD's

Postby Valuethinker » Sun Sep 01, 2013 10:05 am

Rainier wrote:
mickeyd wrote:Personally I have a policy to never consume any food product that is from China. I would also be skeptical about Chinese CDs. I am too protective about my personal information as well as my cash.


Kind of rude, but I also tend to agree. Nearly a quarter of the people in the world eat it, and they live just as long as us.

Unless I had expenses in rmb I wouldn't buy them.


Well. But there are serious health issues in China. For example, there is a milk shortage because the Chinese won't buy locally produced milk after a series of contamination scandals, thus severe shortages of foreign made baby formula.

So the position may be extreme, but it's not imprudent. China has a massive internal pollution problem. Not just air, but soil and water as well.

On the Chinese CDs situation, it seems like a grand and glorious punt *unless* one wants to spend those RMB on Chinese goods and services. For a US investor. Why not just buy an ETF on the Hong Kong exchange? (either HK Listings, or a 'Red Chip'?). Taiwan might also be an interesting way of playing China (heavily weighted towards computer stocks, though). Or for that matter, Australian mining companies.
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Re: Chinese CD's

Postby mickeyd » Sun Sep 01, 2013 1:57 pm

Rainier wrote:
mickeyd wrote:Personally I have a policy to never consume any food product that is from China. I would also be skeptical about Chinese CDs. I am too protective about my personal information as well as my cash.


Kind of rude, but I also tend to agree. Nearly a quarter of the people in the world eat it, and they live just as long as us.

Unless I had expenses in rmb I wouldn't buy them.



To be clear, I eat locally prepared Chineese food regularly, I just try to avoid food that was prepared/packaged in China. Too many other options and too many negative media stories. Sorry if you thought my comment was rude.
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