For years, China’s moneyed elite have been transferring billions in wealth overseas, buying up pricey American real estate in New York, Los Angeles, San Francisco, Seattle and elsewhere despite their country’s currency restrictions.
That outward pipeline of megabucks—as much as US$250 billion annually, according to Patrick Chovanec of Silvercrest Asset Management—just got plugged.
China’s central bank is investigating a report by China Central Television that Bank of China is helping clients transfer unlimited amounts of money overseas, including to the United States, Canada and Australia, in a program that violates currency controls, Xinhua said.
“Regardless of where and how you get your money, we can help you get it out,” CCTV quoted a bank employee as saying.
Existing regulations allow individuals to transfer the equivalent of up to US$50,000 a year.
Adding to the scandal, CCTV’s report helped uncover a “hush-hush” government program that lets anyone who asks transfer their yuan and convert it into dollars or other currencies overseas.
“Reports of ‘underground money farms’ and ‘money laundering’ have no basis in fact,” Bank of China said in a statement, according to The New York Times.
Of course, CCTV’s report on Bank of China hasn’t been viewable on its website since at least July 12, Bloomberg said. Today, the story link led only to a series of advertisements.
According to other reports, the trial program was introduced in 2011 and offered by a number of banks, including Bank of China, which said in a July 9 statement that transfers were allowed by regulators and reported to them.
An unnamed employee of a major state bank told the South China Morning Post that “BOC is not the only bank providing these kinds of services. All major banks do.”
A Swiss banker called the involvement of the big Chinese institutions “an open secret,” wrote Forbes contributor Gordon Chang.
All of which might mean an end to the Chinese shopping spree on American real estate.
According to a National Association of Realtors survey released last week, Chinese buyers spent US$22 billion on US housing last year—an astounding 72 percent more than they spent the year before.
It also means that someone high up in the Communist Party stratosphere publicly exposed China’s dirty laundry, not a good omen for political stability.
“CCTV could not have aired the investigation without authorization from a senior political figure,” Chang said.
Last month, China’s media regulator banned critical reporting of major government institutions without approval.
“CCTV’s public attack on the bank, therefore, suggests infighting among top leaders because officials knew they could punish adversaries for violations of capital control rules,” Chang said.
Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd., told Bloomberg: “There’s a silver lining in this incident as it may force the regulators to address the issue in a more open and transparent way.”
The Guangdong branch of China’s currency regulator, the State Administration of Foreign Exchange, picked Bank of China, China Citic Bank Corp. and a foreign lender to let individuals transfer yuan abroad in a trial the banks were told not to promote.
A Hurun Report survey published last month said that two-thirds of China’s wealthy emigrating, or considering doing so, are also considering giving up their Chinese nationality.
With China slamming shut a no muss, no fuss way to move money abroad, I wouldn’t be surprised if that number were now 100 percent.
Meanwhile, the rich in China will continue out China’s exit doors, but for now will have to evade China’s strict currency export controls the old-fashioned way—by stuffing it in their wallets, purses and suitcases.
The writer is a China commentator. He writes on China for Forbes.
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