Hong Kong stock and real estate markets have recently soared simultaneously. Experts believe it was caused by an influx of “hot money” from mainland China, and worry that it will lead to economic bubbles.
"Hot money" refers to funds that are controlled by investors who actively seek short-term returns. Often, hot money is laundered to “cool” it down, or make it appear legitimate.
The luxury housing market in Hong Kong has risen to as high as 712,800 Hong Kong dollars (US$91,930) per square meter. According to statistics from an intermediary organization, prices for luxury housing in Hong Kong this year have been restored to the level before the financial crisis, and have even exceeded the peak price before the 1997 Asian financial crisis.
An influx of hot money is one of the reasons causing high real estate prices, according to associate Professor Li Kui-Wai from the Department of Economics and Finance of the City University of Hong Kong.
”Many people say that the money came into Hong Kong from mainland China,” Li said. “Though China imposes control over foreign currency, many people are able to bring money [with them] when they come to Hong Kong. Some people say they basically bring money in bags. When someone buys a luxury house, they do not even need to consider a mortgage from a bank, as they would pay in full, in cash.”
Joseph Y.S. Cheng, a professor of political science at the City University of Hong Kong says a significant amount of the money comes from “disgraceful” sources.
“Hence, they want to seek a way out, and hope to transfer money out of China,” he said. “Under such circumstances, we see the wealthiest class in China sending their families to reside abroad, and then try to get a foreign passport, even multiple foreign passports. They also purchase real estate abroad as a way of retreat, and a kind of insurance.”
Cheng also described it as money laundering; “transferring money to somewhere where the Chinese regime does not have jurisdiction.”
“So we have indeed seen such people come to buy luxury housing in Hong Kong,” he said. “Their way of purchase is mostly paying by cash, or paying in one lump sum, unlike ordinary residents, who would buy through a long-term, ten- or twenty-year mortgage.”
The latest data shows that since the beginning of the financial crisis, the total amount of money flowing into Hong Kong has reached 532.6 billion Hong Kong dollars (US$68.69 billion), and is mostly traced to mainland China.
Sung Lap-kung, a program coordinator of the School of Continuing and Professional Education at the City University of Hong Kong, said that much of this hot money has entered Hong Kong from the Pearl River Delta area.
“Much of the hot money is from the 4,000 billion yuan (US$ 585.82 billion) stimulus fund, handed out from the Chinese government, at the end of last year and the beginning of this year,” Sung said. “Much of it has been released from the banks.”
Financial expert Lew Mon-hung said that mainland China’s total credit provided this year is close to 10 trillion yuan (US$1.46 trillion)—more than double the target set by the authorities.
“Some large state-owned enterprises are not short of money,” Lew said. “However, in order to fulfill their credit quota, the banks give many large state-owned corporations excessive amounts of money. They then invest them into the real estate market and the stock market; hence the inflow of hot money.”
Lew suggested that this sudden influx of hot money into Hong Kong is mainly due to distrust of the communist dictatorship.
“Though they used many capitalist ways to develop the economy, it is still under the banner of Marxism,” Lew said. “So people have concerns about this. Mainland China has a market economy that is distorted by power, particularly from the perspective of rule of law. Its law and rule of law do not match international standards.”
Lew said corruption was also a big problem. “Many links provide opportunities for these corrupt officials,” Lew said. “That is, they are eager for high credit quota, the higher the better for them. So as far as the politics is concerned: the GDP has increased; as far as individuals are concerned: they have more opportunities to seek money.”
“Of course there will be money laundering, which is a method of covering up one’s own economic crime,” Lew added.
Many financial experts and scholars are concerned whether such soaring prices in the real estate market will cause an economic bubble.
Once a large-scale outflow of capital occurs, it will impact Hong Kong's dollar interest rate and exchange rate, and the real estate price will drop accordingly. It is estimated that the pressure for lowering the real estate price will be greater and greater after December.
Source: The Epoch Times
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