There’s barely a global asset that isn’t influenced by Chinese money, from the latest hot Hong Kong public offering to luxury apartments in Vancouver.
Technically though, most of these purchases are the result of loopholes exploited by Chinese citizens — or in some cases outright law-breaking. China’s capital control rules explicitly forbid citizens from using any of their $50,000 annual foreign exchange quota to directly purchase offshore property or securities, although indirect investment via some channels is permitted. There’s an official program for trading Hong Kong stocks, for instance, which crucially doesn’t include IPOs.
Depending on the severity of the breach and the amount of money involved, potential sanctions range from being denied future quotas to criminal conviction.
Despite the risks, finding a way around the regulations is something of a national pastime. For ordinary middle-class families exploiting loopholes is all about making money, while for the rich — spooked by China’s crackdown on Alibaba — it’s about protecting fortunes.
As the Chinese authorities periodically crack down on common techniques, exactly how funds are moved changes over time. Right now, it’s all about peer-to-peer and cryptocurrencies rather than cash in a suitcase.
“It’s got a lot harder than before, but people are still finding a way,” said Peter Cai, project director of Australia-China relations at the Lowy Institute. “The risks are manageable for most people because the rules haven’t been fully enforced by the Chinese authorities.”
Details are based on interviews with people who moved money offshore and those familiar with the practice, who declined to be quoted publicly or by full name due to the sensitivity of the topic.
1. Offshore Basics
2. Peer to Peer
3. Virtual Currencies
4. M&A Games
