China’s Growing Trillion Sized Problem
You can’t take more than $50,000 USD out of China each year
It is estimated that roughly a colossal $1 trillion left China in 2015. China is bleeding, and bleeding badly. The regulations limiting the amount of yuan that can leave China have been in place for awhile – each Chinese national is allowed to transfer no more than $50,000 USD in a span of a year (this limit resets each year on 1 January) – but China’s foreign exchange reserves continue to plummet, and it came in at a five year low of $3.05 trillion in November last year. It is no surprise that the Chinese government have squeezed in a few new regulations in vain effort to staunch this worrying outflow.
Will these measures translate to greater stability? Over the years, controls have been refined, and loopholes discovered and patched, but money seems to be leaving at an accelerating rate. As it now stands, additional rules included, banks are required to ID those making overseas transfers, and financial institutions are to report transfers suspicious transfers and transfers must be accompanied with explanatory notes. Is it for tuition? A holiday? Medical care? These are determined as acceptable reasons; whilst not officially declared, some banks are stating that these transfers cannot be for the purchase of overseas property, securities and similar investments. And what are suspicious transfers exactly? These are ones that exceed $10,000 USD as well as cash transactions over 50,000 yuan, regardless of if they are domestic or international transfers. The latter measure was recently updated to be reduced significantly from 200,000 yuan.
This presents quite a problem for investors, entrepreneurs, parents with children studying in foreign universities. Anyone really, with any interests abroad. Cate Blanchett recently attempted to sell her Sydney waterfront home at $20 million. The keen buyer, a Chinese national, failed to close the deal due to China’s outflow restrictions. The restrictions are harsh, but you can’t really blame the government for trying.
If you get caught breaching the rules, you will suffer heavy penalties. A fine at 30% of the illegal transaction amount, plus another fine on top of that at maximum of 50,000 yuan. There will also be a cessation of that individual’s rights to make further overseas transactions for the subsequent two years.
Of course it would be impossible to restrict the outflow completely. As disconnected as China may sometimes appear with its heavy censorship, China has many international ties. Applied definitively, it would mean that many businesses would be unable to conduct their activities. Legal means to move money overseas exist for businesses, if you meet the provisos, such as falling high on the upper end of the wealth scale, successfully scaling the long uphill climb of multiple government approvals and jumping through the hoops of red tape .
There are surely ways around this, as Chinese buyers continue to snap up property overseas and make other business and personal investments. Pooling friends and family to raise your limit is one common and accessible method. You may even hire people to grow your pool. Other methods are through the employ of underground banks, cash smuggling and overseas loans.
Nonetheless, the ever tightening noose will undoubtedly stymie the leak, being particularly difficult for those who are not very wealthy and without connections. There has been a stream of reports about people who have struggled to obtain money for what would be rather under ordinary circumstances be taken as regular personal or business transactions.
Will these steadily harsher regulations spell bad news for the property market in Australia, which in the 2014-2015 financial year, saw $24 billion in sales to Chinese property buyers? It may depend on if China manages to catch up with the crackdown of the blackmarket that has surely arisen from these restrictions.
And what does this mean in the world of migration into Australia? How would such measures affect someone migrating and wanting to move their assets abroad? Or business people and investors who are looking to establish businesses or invest overseas in pursuit of a visa? If we are only sure of one thing, the Chinese will rise to this ‘challenge’ grandly.