Wealthy Chinese have moved hundreds of billions of dollars out of the country this year, taking advantage of the end of Covid precautions that had almost completely sealed China’s borders for almost three years.
They are using their savings to buy apartments, stocks and insurance policies abroad. Able to fly again to Tokyo, London and New York, Chinese travelers bought apartments in Japan and invested money in accounts in the United States or Europe that pay higher interest than in China, where rates are low and falling.
The outflow of money partly indicates unrest within China over the faltering recovery after the pandemic, as well as deeper problems, such as an alarming slowdown in the real estate sector, the main store of household wealth. For some people, it is also a reaction to fears about the direction of the economy under China’s leader Xi Jinping, who has cracked down on businesses and strengthened the government’s influence in many aspects of society.
In some cases, the Chinese are improvising to circumvent China’s strict government controls on money transfers abroad. They have purchased gold bars small enough to scatter discreetly in carry-on luggage, as well as large wads of foreign currency.
Real estate is also an option. The Chinese have become the main buyers of Tokyo apartments costing $3 million or more, often paying with suitcases of cash, said Zhao Jie, chief executive of Shenjumiaosuan, an online real estate listing service in Tokyo. . “It is very difficult to count this amount of cash.”
Before the pandemic, he said, Chinese buyers typically bought studio apartments in Tokyo for $330,000 or less to rent. They are now purchasing much larger units and obtaining investment visas to relocate their families.
In total, it is estimated that about $50 billion a month has been taken out of China this year, mainly by Chinese households and private sector companies.
Experts said the pace of money outflow from China probably did not pose an imminent risk to the country’s $17 trillion economy, largely because exports of many of the country’s main manufactured products are strong, generating a constant flow of cash.
A broader move by families to send their savings elsewhere could be cause for alarm. Large-scale outflows have triggered financial crises in recent decades in Latin America, Southeast Asia and even China itself, in late 2015 and early 2016.
So far, the Chinese government indicates that it believes it has the situation under control. The money leaving China has weakened the currency, the renminbi, against the dollar and other currencies. And that weak renminbi has helped sustain China’s exports, which support tens of millions of Chinese jobs.
The flow of money out of China “is very manageable,” said Wang Dan, chief China economist at Hang Seng Bank’s Shanghai office.
Chinese authorities still rely on some of the limits on money leaving the country that they imposed to stem the currency crisis eight years ago. Other restrictions imposed then, such as scrutiny of exports and imports to detect covert schemes for international money transfers, were allowed to lapse and have not been reimposed this year, even as money outflows have resumed.
The movement of money out of China has roughly equaled the money brought in by the country’s large trade surpluses. To the dismay of many countries elsewhere, particularly in Europe, China is exporting increasing numbers of solar panels, electric cars and other advanced products, even as it has replaced more imports with domestic production.
The renminbi fell in value earlier this year to its lowest level in 16 years. It hovered around 7.3 per dollar for much of the last two months, before rising a bit in the last week.
The surge of money out of China that occurred eight years ago was caused by a stock market crash and a failed attempt to devalue the currency in a controlled manner. China’s central bank had to spend up to $100 billion a month from its foreign money reserves to prop up the renminbi.
By contrast, China appears to have spent about $15 billion a month since mid-summer to stabilize its currency, according to central bank data. “There’s nothing to suggest it’s disorderly,” said Brad Setser, an international finance specialist at the Council on Foreign Relations. “The magnitude of the pressure is still much lower than in 2015 or 2016.”
Capital outflows in 2015 and 2016 reflected efforts by large state-owned companies to move large sums of money abroad. The government now exercises tighter political control over those companies and there has been no sign of a similar race for their exit.
Instead, private companies and households in China have been moving money abroad. But much of people’s wealth is tied up in real estate, which cannot be easily sold.
At the same time, eight years ago, police raids shut down illegal currency exchange businesses in Shanghai, Shenzhen and other cities that used to convert renminbi into dollars and other foreign currencies.
And regulators have shut down almost all gambling travel to Macau, a separately administered Chinese territory. These trips allowed wealthy Chinese to buy casino chips with renminbi, bet some of them on baccarat or roulette, and then convert the rest into dollars.
Beijing has also banned most foreign investment in hotels, office towers and other assets of little geopolitical value. The architect of China’s foreign investment restrictions, Pan Gongsheng, was promoted in July to governor of the central bank, the People’s Bank of China.
But households and businesses still manage to send money abroad.
On a recent afternoon, mainland branches of Bank of China and China Merchants Bank were selling gold bars for 7 percent more than their affiliated banks in neighboring Hong Kong. That price difference indicates that within China, demand is high for gold, which can be easily taken out of the country.
Another trick mainlanders are using to get money out of China is to open bank accounts in Hong Kong and then transfer money to buy insurance products that resemble bank certificates of deposit. According to the Hong Kong Insurance Authority, premiums for new insurance policies sold to mainlanders visiting Hong Kong were 21.3 percent higher in the first half of this year than in the first half of 2019. , after almost disappearing during the pandemic.
At a Bank of China branch on Hong Kong’s Kowloon Peninsula, mainlanders waited at 7:30 on a recent morning to open accounts, 90 minutes before the bank was scheduled to open. The line was so long at 8 a.m. that anyone arriving later was lucky to get to the front of the line before the end of the business day, said Valerius Luo, a Hong Kong insurance agent.
So families typically invest between $30,000 and $50,000 in U.S. currency in insurance products, several times more than before, as they look for safe places to deposit their savings, Luo said. “There are still people with powerful capital,” he said, “and they want an investment package that preserves value.”
Li you and Hikari Hida contributed to the research.
