Rich Chinese understand why you should diversify your portfolio better than anyone.
Most of our readers know that Asia’s largest economy saw rapid development over the past few decades. This is mostly because of entrepreneurial spirit, privatization of state-owned companies, and economic liberalization since the 1980s.
China is now cracking down on offshore remittances though. Beijing is doing everything they can to keep money inside the country as growth stalls and domestic spending weakens.
That’s not stopping capital from flowing out of China. People always find a way. But stricter rules have forced them to become cleverer when investing and transferring money abroad
Here are three assets China’s wealthy are buying up. All of these investments are anonymous – at least to their own government.
Chinese investment in offshore real estate reached a record high in 2016. Predictions show it will be even higher this year, despite more limits on transferring money outside of China. It’s hard to stop capital flight once it begins.
Favorite cities to buy property include Singapore, London, New York, Sydney. Each of these places have excellent universities, large Chinese communities, and relatively stable real estate markets.
Remember: the whole reason China’s rich are investing abroad is because they don’t trust their government. Foreign property gives them a bolt hole in another country, a place for their children to live while they go to school, and perhaps even a second residency.
Better yet, no government makes you report foreign real estate holdings to them. This is a huge benefit compared to stocks, bonds, private equity holdings, or the vast majority of other assets.
There’s a reason why Singapore became the world’s top country to purchase and store precious metals.
Actually, there are several reasons. Low taxes, a strong rule of law, and a forward-thinking government led the amount of bullion sold in Singapore to increase exponentially since the early 2000s.
Chinese demand for gold and silver is perhaps the most important driver of sales though. Beijing imposed import restrictions on gold last year. Of course, that doesn’t stop people from buying gold offshore to keep in one of the world’s many anonymous vaults.
Gold and silver don’t pay rental income each month. Nor can you live in them. But they’re proven as a hedge against inflation and can protect against any depreciation of the Yuan.
Plus, bullion is much easier to buy compared to international property.
I can admit to mistakes. I should have bought cryptocurrencies such as Bitcoin earlier than I did.
My original view was that Bitcoin is a volatile and inferior version of gold. After all, gold is a perfectly sufficient hedge against inflation. Why have a digitized version of something which has been a storage of wealth for centuries? It’s redundant.
But I underestimated the value added by digital currencies. Specifically, the ability to transfer and store them easily and completely anonymously.
Furthermore, I underestimated the demand for these traits and the reception of cryptocurrencies in China. Bitcoin rose from less than $1,000 at the beginning of 2017 to $5,000 several months later.
It’s not a coincidence that this dramatic rise happened at a time when China’s capital controls are intensifying.
Bitcoin’s appreciation from the beginning of 2017 until September.
Cryptocurrencies are indeed far more volatile than precious metals. They don’t have real world applications either. Jewelry, electronic parts, and many other things are made out of gold and silver.
Yet digital currencies are also more liquid and have lower transaction costs.
For example, you must find a buyer and pay the spread if you want to sell physical bullion. Selling Bitcoin or Etherium takes a few minutes and a small $5 fee. It’s not necessary to interact with anyone else.
Now you know how China’s rich are preserving their wealth for future generations. Would you like to do the same?
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