Chinese Get Creative to Send Money Overseas as Yuan Depreciates
The value of the Chinese yuan has been falling since the U.S.-China trade war began in earnest this month. On Aug. 1, the yuan’s value fell to 6.82 against the U.S. dollar.
The central parity of the yuan has depreciated by more than 4 percent since the beginning of the year, while its value against the dollar has dropped by 8 percent since April—the worst four-month fall on record.
In an attempt to preserve the currency’s value, Chinese citizens are seeking to send their money abroad. However, the Chinese regime has sought to curb capital outflows and restricted foreign-exchange amounts to less than $50,000 a year since 2015, creating a conundrum.
Instead, Chinese people have found alternate ways to move their savings. There are several common methods: some are legitimate, some are downright shady.
One way is to find relatives and friends to help in the exchange. For example, if a family visits their child studying abroad in the United States and they wish to buy a house in the United States as an investment, they can find relatives and friends to exchange $50,000 each. They then can remit that money to purchase the house.
A customer in China sends yuan to a Chinese bank account designated by the shadow bank. After deducting the commission, the shadow bank will remit the U.S. dollars to the customer’s foreign bank account, according to the exchange rate of the day. The commission is usually about 0.8 percent to 1.5 percent.
The amount of money that a person can spend using a credit card in foreign countries is the credit limit, plus any additional deposits one can add to expand the line of credit. For example, if the credit limit is 100,000 yuan and one adds 400,000 yuan, then the user can use the equivalent of 500,000 yuan for foreign exchanges overseas.
Wealthy Chinese businesses can pretend to do business with foreign companies in order to gain approval to exchange large sums. For example, a Chinese company can claim to have purchased a $1 million machine tool from a foreign company, using a foreign company that is willing to first issue an invoice. That invoice can be used to “prove” a cross-border transaction.
Another kind of false transaction is having a domestic company place an order with a foreign company using prepaid deposit and a letter of credit. After paying the deposit, the domestic company breaches the contract. When the foreign company also cancels the contract, the domestic company seizes the deposit and compensation fees for canceling the contract—which are then transferred abroad.
In addition, businesses can send more money overseas by claiming the transit of goods. Usually, when the import and export of goods are not directly traded between the producing and consuming countries, but through a third country, there are methods of foreign-exchange financing, such as payment of a security deposit or banknote mortgage. Companies can falsely claim that goods were transferred through a third country in order to send money overseas.
People also often use a credit or debit card to purchase expensive goods while traveling overseas, such as luxury products. After purchasing them, they immediately return the goods to the store in exchange for cash. After paying a service fee of 5 to 10 percent, a Chinese customer can get cash at a good exchange rate.
Meanwhile, bitcoin and other virtual currencies have the characteristics of anonymity, decentralization, non-traceability, and cross-border mobility. Therefore, virtual currencies can be easily used for funds to flow overseas.
Economic analysts predict that the Chinese regime will allow the yuan to fall in an effort to offset the effects of the U.S.-China trade war.
“I think they’re looking at the currency mainly as a tool to support economic growth. Our view is that, yes, we’re likely to see further depreciation but we think it will be in a very controlled and gradual fashion,” said bond firm PIMCO’s global economic adviser, Joachim Fels, at a conference last week. He said that he didn’t think authorities had any firm thresholds for the yuan.
Epoch Times staff member He Jian and Reuters contributed to this report.