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September 20, 2017

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SPECIAL REPORT: Capital retreat from China?

When China began making its rocky transition from socialism to a market economy with a series of economic reforms in the late 1970s, investors from Taiwan were among the first to venture into the new market.

However, with China's economy now expanding at its slowest pace in more than a quarter century, and amid rising economic headwinds and clouding global uncertainties, an increasing number of Taiwanese-owned companies are feeling the impact.

A senior executive at a major international accounting firm in Taipei, who asked to remain anonymous, told The China Post that large swaths of institutional and individual investors have been scrambling to move cash out of China and back to Taiwan.

And it is not only investors from Taiwan who are pulling capital out of China. According to Bloomberg, more than US$1.2 trillion has flown out of the country since the shock devaluation of the yuan in August 2015.

The nation's foreign-exchange reserves have fallen by US$800 billion in two years.

"After the Lunar New Year holiday, we will likely see a large-scale shutdown of small to mid-sized businesses in China, including those run by Taiwanese people," said the Association of Taiwan Investment Enterprises on the Mainland (ATIEM), a corporate community made up of Taiwanese businesspeople in China.

The association said a wave of departures started around four years ago, adding that the current wave was different from before — in the past, while Taiwanese businesses would shut down factories in China, many kept their assets in the mainland as they maintained an optimistic outlook on the Chinese economy.

"They used to either keep their mainland savings in banks or invest in real estate, businesses ventures or the stock market. But what is different about the current wave of departures is that not only have the factories and assets left, people have stopped feeling any sort of sentimental attachment to the place altogether," an anonymous committee member of the association told local media.

How Money is Flowing Out of China

Since the 2015 devaluation, Chinese companies have stepped up repayments of foreign-currency debt. Chinese companies are also acquiring foreign companies like never before, exacerbating capital outflows.

This problem has been added to by individuals buying insurance in Hong Kong and snapping up property abroad, as well as investing in bitcoins to sell on overseas exchanges.

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