Gold illustration. (Chen Bozhou/Dajiyuan)
October 23, 2024 - Due to China’s ongoing economic downturn and unresolved real estate crisis, more and more Chinese citizens are seeking safer places to store their wealth to avoid becoming targets of the Chinese Communist Party (CCP). Under the CCP’s watchful eye, large sums of money are being moved out of the country by Chinese residents.
According to The Wall Street Journal, up to $254 billion may have bypassed CCP regulations and flowed out of China over the four quarters leading up to the end of June. This amount surpasses the volume of capital that fled China nearly a decade ago.
The strict COVID-19 lockdowns, the CCP’s crackdown on the private sector, and widespread concerns that China’s period of rapid economic growth has ended have driven resourceful and capable Chinese citizens to keep their earnings overseas rather than bring their money back to China. This allows them to take advantage of higher interest rates on deposits and better investment opportunities abroad.
This outflow of capital has alarmed the CCP, prompting it to tighten capital controls further, with individuals limited to purchasing a maximum of $50,000 in foreign exchange annually. Violators face hefty fines and even imprisonment.
Hong Kong banks have also implemented strict limits on new cash deposits, aiming to prevent potential violations of capital controls. Private bankers in Hong Kong report that any client depositing more than $10,000 in a single week must provide documentation proving the source of the funds.
Despite these measures, Martin Lynge Rasmussen, a senior strategist at research firm Exante Data, told The Wall Street Journal that capital flight is still occurring. This indicates that, given the limited investment opportunities in China, people are determined to seek better returns elsewhere.
Individuals are using a variety of time-tested but risky methods to bypass government restrictions, such as transporting valuables overseas or overpaying for imports. Others are using newer methods, like transporting hard drives containing cryptocurrency to other jurisdictions, where they can be exchanged for cash.
Art provides another avenue for transferring wealth. A representative from a major auction house told The Wall Street Journal that most transactions nowadays are completed by individuals looking to move their money out of China.
The process is simple: valuable artwork is shipped to Hong Kong and sold at auction. However, the proceeds are not repatriated to mainland China; instead, they are kept in Hong Kong in U.S. dollars or other foreign currencies. From Hong Kong, which lacks capital controls, the seller can transfer the money elsewhere.
In addition, according to representatives from family offices managing Chinese assets, some business owners are setting up shell companies overseas in the names of family members to bypass CCP regulations. These companies then acquire shares in Chinese businesses.
As a result, these Chinese businesses can be reclassified as Sino-foreign joint ventures, exempting them from the CCP’s restrictions on individuals. This allows Chinese owners to transfer funds to overseas entities through dividends and other payments. However, insiders note that transferring funds this way is a slow process.
Editor: Ye Ziwei
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