ANALYSIS: China’s Wealthy Fleeing Amid Economic Downturn, CCP’s Clampdown on Capital Flight

ANALYSIS: China’s Wealthy Fleeing Amid Economic Downturn, CCP’s Clampdown on Capital Flight
Passengers are seen at the Beijing Daxing International Airport in China's capital city on April 28, 2023. (Jade Gao/AFP via Getty Images)
Jessica Mao
12/5/2023
Updated:
12/5/2023
0:00
News Analysis

China’s rich are fleeing the country at an increasing rate, transferring large amounts of their assets abroad to avoid being targeted by the Chinese Communist Party (CCP) amid the economic slowdown.

CCP leader Xi Jinping has been invoking the concept of “common prosperity” to push for the so-called fair redistribution of wealth. In reality, some China observers contend that the regime is seeking to acquire the assets of wealthy individuals, attributing this strategy to the downward spiral of the Chinese economy.

‘Economic Situation Is Quite Bad’

Mike Sun, a U.S.-based investment strategist and China expert, told The Epoch Times: “I don’t have confidence in him [Xi Jinping]. The Chinese people generally lack confidence [in China’s leadership], resulting in people just wanting to leave the country.”
From Nov. 28 to 29, Xi visited Shanghai, China’s financial hub. Chinese state media reported that the purpose of his visit was to urge the finance sector to better serve the nation’s economy.
“He was there to reassure the market,” Mr. Sun said. “In reality, China’s A-shares are falling, especially the financial stocks. People are just not buying it. No matter how they try to reassure the market, it’s not working. This means that China’s overall economic situation is quite bad.”

Mr. Sun said that only the CCP is currently making massive investments; the regime is still spending on big infrastructure projects, but the private sector is stagnant. He said there is a significant lack of confidence from private investors, and wealthy individuals are seeking to move their assets overseas instead of investing in domestic markets.

“Many of my friends in China now want to leave. ... However, one of the major challenges that they face is that they can’t get their money out of the country. This greatly limits how people can leave China.”

Beijing strictly controls its foreign currency reserves, limiting the Chinese to take out the equivalent of $50,000 annually from their bank accounts. To circumvent the regulatory controls, many wealthy individuals have resorted to underground banks as a covert means of moving money out of the country.

Sneaking Cash Out of China

On Nov. 28, a New York Times article claimed that China’s wealthy have transferred hundreds of billions of dollars out of the country this year, directing funds toward foreign currencies, gold bullion, and real estate in overseas markets.
According to Jay Zhao, the CEO of Tokyo-based online real estate agency GA Technologies, Chinese clients have become the primary buyers of apartments in Tokyo valued at $3 million or more, and they bring suitcases full of cash to make payments. The Chinese language edition of The Epoch Times previously reported that there is no shortage of affluent Chinese tourists traveling to Japan to buy property.

The wealthy Chinese use tourism as an excuse to bring massive amounts of cash overseas, according to Mr. Sun, as the CCP strictly prohibits direct capital investments overseas. Essentially, Chinese individuals are allowed to take money out of the country for traveling and studying abroad but not for buying stocks, bonds, or real estate. Thus, to purchase property overseas, people found ways to circumvent state controls to transfer their funds out of China.

However, Mr. Sun said the CCP is targeting China’s underground banking system to prevent an outflow of foreign currency.

“Macau used to be a hub for money laundering and underground banking, but now this route has been blocked,” he said.

Alvin Chau, the former CEO of Suncity, dubbed “junket king” in Macau, was sentenced to 18 years in prison in January this year for running an illegal cross-border casino and money laundering syndicate.

“When I asked a few friends in the business sector about how their money got out of China via Macau, the consensus was that it was all smuggled out. Cash was transported on speedboats to Macau and some third country in Southeast Asia. From there, the money was transferred to countries like Japan via legitimate means,” Mr. Sun said.

Visitors take photos outside the Wynn casino resort with a view of the Grand Lisboa (top C) casino resort building in Macau, China, on March 5, 2019. (Anthony Wallace/AFP via Getty Images)
Visitors take photos outside the Wynn casino resort with a view of the Grand Lisboa (top C) casino resort building in Macau, China, on March 5, 2019. (Anthony Wallace/AFP via Getty Images)

Another method of moving money under the CCP’s radar is through import and export companies. These companies deliberately inflate the prices of their products during transactions with China and collaborate with international partners to funnel funds overseas through the company accounts.

The less sophisticated method involves physically carrying cash out of China in a suitcase, as the Chinese yuan can be exchanged for U.S. dollars in Southeast Asia and the United States.

Meng Jun, a Chinese entrepreneur now living in exile in the United States, told The Epoch Times that some luxury real estate transactions in Southern California have been conducted using Chinese currency.

“Some sellers require payment in Chinese yuan as they are returning to China, so they let the buyer pay with yuan from China. They can transfer the property title like this. This is legal in California, and many people I know have done this,” he said.

China’s Capital Outflow 

China is experiencing the largest capital flight in years. Nikkei Asia revealed data from China’s State Administration of Foreign Exchange in September showing a net capital outflow of $53.9 billion, the largest since January 2016, when it was $55.8 billion due to the depreciation of the Chinese yuan.
Breaking down the numbers, direct investments, including manufacturing plants, amounted to $26.2 billion, while net outflows related to securities investments, such as equities and bonds, reached $14.6 billion. The latter has been consistently following a net outflow trend since February 2022.
In August, China’s capital account saw an outflow of $49 billion, the largest since December 2015. The capital outflow has also caused the Chinese yuan exchange rate to fall to a 16-year low.

‘CCP Is Running Out of Money’

Mr. Meng said the CCP is now trying to purge China’s rich of their wealth. “The CCP is running out of money, so it resorted to looting the wealthy individuals in China. This has been going on for a while; it is happening openly and blatantly now. The regime is desperately trying to extort money from people through so-called tax audits and capital control.”
The New Yorker reported in October that according to a factory owner in Shanghai, Party officials allegedly used bank records to target individuals with liquid assets of at least 30 million yuan (about $4 million) and demanded that they hand over 20 percent of their assets or be subjected to “a full tax audit.”
The Epoch Times could not verify the claims. 

“Ultimately, the wealthy will rush to sell their assets and transfer their money overseas via whatever means. Many will leave China for their safety. If they wait any longer, they may not even be permitted to leave the country. Therefore, we must have a clear understanding of the CCP’s actions,” Mr. Meng said.

Xin Ning contributed to this report.
Jessica Mao is a writer for The Epoch Times with a focus on China-related topics. She began writing for the Chinese-language edition in 2009.
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