China cracking down on money leaving the country

Chinese buyers are finding it increasingly difficult to get money out of the country, as Beijing tightens foreign exchange controls in a bid to support its weakening currency. It has been said in recent weeks clients were having difficulty moving money offshore.

Properties below $5 million were likely to be the hardest hit as these buyers often did not already have money offshore.

These people don’t have other ways, like through their business, to get money out of the country. That means they will have to go through the bank which is becoming more difficult. Chinese buyers purchasing properties over $5 million often have offshore business interests, which had allowed them to get money out of the country.

In China, individuals are restricted to moving the equivalent of $50,000 U.S. out of the country each year. There were previously many ways to get around these capital controls, as banks and the government turned a blind eye to money going offshore.

But in recent weeks as China’s currency, the yuan, has come under increasing pressure from capital outflows and those speculating it is set to fall further, the banks have tightened up on existing regulations. State-owned banks are delaying or even blocking money going overseas. The crackdown has seen more stringent checks on documents for both companies and individuals.

“We are now refusing all foreign currency transfers where the documents are not fully complete …. previously the requirements were not so strict,” said a bank executive in Shanghai who asked not to be named.

The tighter rules are in response to a record $108 U.S. billion fall in China’s foreign-currency reserves in December to the lowest level in three years, as capital left the country and the central bank was forced to defend the yuan.

According to the Washington-based Institute of International Finance, China saw $676 U.S. billion in capital leave the country last year, as outflows surged in the second half of last year.

The Chinese currency has fallen 3% since August last year, when the government began guiding it lower.

There are fears Beijing’s crackdown on foreign exchange transactions will spill over into the property market, which has seen strong price gains as Chinse buyers moved aggressively into the market.

 the tightening of restrictions could “cause problems for developers as clients may not be able to get their money out of China.”

Business Insider - January 21, 2016