China has implemented tight control over its foreign exchange reserves due to the depreciating value of the yuan and to prevent rapid capital outflow. However, the Chinese people who want to withdraw cash (in foreign currency) from their banks are finding it difficult to do so. So they use different channels to get their money out. Some hire professional agencies to help, while others ask their relatives and friends to take the cash with them abroad.
China’s foreign exchange reserves stood at $3.1097 trillion at the end of August, $8.2 billion less than a month ago, according to data from the People’s Bank of China. In 2014, the Chinese foreign exchange reserves reached $4 trillion, nearly reduced by $1 trillion within 3 years.
Tsinghua University professor Wei Jie said that China must stabilize the foreign exchange by maintaining the margin above $3 trillion, then China won’t be hit hard by the Sino-US trade war.
In July 2017, People’s Bank of China launched new rules for large-sum and suspicious transactions in financial institutions, making it difficult for people to withdraw cash. The foreign cash withdrawal is only limited to a few areas such as holidays, overseas study and non-investment insurance. The financial institution has the right to refuse transactions that violate the rules.
A Taiwanese worker living in mainland China said that although his annual transaction doesn’t exceed the 50,000 yuan ($7,273) limit, he still prefers to use private channels to transfer money. He said it is too difficult and complicated to transfer the money through the official way (a bank) because they require all sorts of background checks. So he’d rather use his friend’s company and pay for the extra service charge to send money home.
The Taiwanese works for a Taiwan company in China. During the Chinese New Year, his boss asked 3 to 4 colleagues to take money back with them to Taiwan. Each person would take 6 to 8 bundles of banknotes, one bundle was about 20,000 yuan.
The law allows each individual to carry a maximum of 20,000 yuan out of China, and violators will have their money confiscated by customs officials.
Although the Chinese authorities strictly control the investments of large enterprises abroad, some rich individuals have been caught buying investment property overseas. These people may not have investment companies overseas, but they still have enough money to set one up. The enterprises’ illegal operation is the major channel for China’s capital outflow.
American scholar Christopher Balding who taught at Peking University HSBC Business School was interviewed by Germany’s Süddeutsche Zeitung. He said that a Chinese company ordered $15 million worth of foreign products, but the actual imported goods were only worth $10 million. The $5 million difference went into an overseas bank account, and it is impossible for the customs officers to inspect each container and match all the value of the goods.
This has not only happened with the purchasing of goods, the same method is also used with the purchasing of services. Some consulting companies charge high fees. But in fact, they help their clients buy property abroad and the service charge is only a small percentage.
Some people in mainland China, including the Taiwan citizens who live there, said that it is getting more and more difficult to transfer money out of China. The Chinese authorities’ tight control only works on people who are fully law-abiding, but there are those who risk breaking the law to take their money out of the country.
Republished from the Central News Agency