Controlling financial flows goes hand in hand with political control; it allows those in power to manage risk. In China, this is a major issue. As the world’s top exporting power, China allows foreign currency exchange for commercial transactions but imposes strict restrictions on capital outflows. The authorities fear speculative inflows and outflows that could destabilize the economy, as happened in southeast Asia in 1997. Chinese citizens can transfer only $50,000 (€43,000) a year abroad, for example, to cover travel or education expenses.
However, as economic growth has slowed and the real estate market – which long offered impressive returns – has slumped over the past five years, wealthy Chinese have been searching for profitable investments. Some are also looking to move their money abroad in order to relocate their families, and eventually themselves, far from the regime.
Beijing regularly cracks down on the various channels used to move money out of the country. These methods are numerous and far more complex than the traditional bundles of cash hidden in a coat lining. One of many established practices is the use of Macau pawnbrokers, who buy luxury watches in yuan and resell them in dollars before the money is routed through casinos, cryptocurrencies or simple compensation schemes with no physical exchange of cash, orchestrated by criminal groups on both sides.
Heavy blow for investors
Other methods operate openly. The Chinese government recently launched a crackdown on platforms that had allowed Chinese investors to trade stocks abroad. Three brokerage firms – Longbridge Securities and Tiger Brokers (both based in Singapore), and Futu Holdings in Hong Kong – were fined a total of $330 million for serving clients in China without proper licenses to operate in the country. This is a heavy blow for Chinese investors who value access to international stocks via Hong Kong.
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