Chinese money is seen all over the world, from corporate IPOs and shareholdings to large overseas property acquisitions. Foreign media analysis shows that most of the purchases are technically the result of Chinese citizens exploiting loopholes, even in some cases completely illegal. Although there are risks, how to exploit the loopholes has become a hot topic in the country, and there are currently four major categories of ways to “steal the day” for money!
The report points out that Chinese citizens only have an annual foreign exchange quota of $50,000, and capital control rules explicitly prohibit the use of its direct purchase of offshore real estate or securities, violators may be canceled quota or criminal liability, but certain non-indirect channels can be invested. For the average middle class, exploiting the loopholes is just a way to make more money; for the wealthy, overseas assets are a way to protect their wealth.
The first trick is to set up an offshore account.
A prerequisite for spending money offshore is an offshore account, which is legal but sometimes tricky. Chinese banks set high thresholds for opening accounts in Hong Kong, such as China Minsheng Bank, which requires clients to deposit 300,000 yuan within three months, and Chinese banks are often stricter when checking the use of foreign exchange quotas. After obtaining an overseas account, to buy Hong Kong stocks one simply deposits funds into a brokerage account, and even though each step is legal, overall everyone is in breach of the initial foreign exchange purpose commitment.
Hao Hong, chief strategist at BOCOM International, was quoted as saying that most people who move money abroad do so in pursuit of higher investment returns, especially if they are eager to participate in overseas IPO activity by emerging technology companies.
While Chinese regulators have so far turned a blind eye to the practice, the foreign exchange regulator is still considering whether residents should be allowed to buy overseas stocks directly, and if officials decide to crack down, they may put violators on the regulator’s watch list and deny foreign-exchange quotas and conduct anti-money-laundering investigations for three consecutive years.
Next, there is P2P.
Another popular option for those who want to avoid the attention drawn by cross-border transfers, or to raise the limit on remittances to more than $50,000, is P2P, where some Hong Kong insurance agents have turned into underground money changers, charging a fee to provide services to those who need local dollars.
The biggest threat this poses, aside from the ease of falling into a fraud trap, is the potential criminal liability. According to Chinese Supreme People’s Court documents, disguised fraudulent trading in foreign exchange or foreign currency transactions can lead to criminal convictions, but there are no details on what types of transactions are classified as such.
The third is investing in virtual currencies.
Based on the decentralized nature of the blockchain, virtual currencies its difficult to track and are the ideal conduit. The first step is to use a VPN to jump off the Chinese network and set up a crypto trading account. To deposit the account, most people purchased Tether USDT coin USDT in RMB, which is backed by the equivalent amount of USD and therefore accepted as a payment method by many crypto platforms, and can then use the Tether USDT token to trade other coins and remit the proceeds to their overseas bank accounts.
8 people only The Chinese Communist authorities are also aware that virtual currencies are on the rise and are difficult to stamp out. There are no officially recognized virtual currency exchanges in China, and virtual currencies are still active for illegal purposes such as money laundering, and any funds suspected of such activity could trigger a freeze on overseas accounts.
There is also a move to mergers and acquisitions.
For the really rich or corporate, there are ways to play up the acquisition price. They can arrange to pay more for an overseas asset, with the seller paying the difference to a middleman as an advisory fee, which can be deposited into the buyer’s offshore account. Shen Meng, a director at Beijing-based investment bank Chanson & Co. was quoted as saying that intangible assets such as intellectual property are perfect acquisition targets because there is plenty of room to overpay.
China has stepped up scrutiny of overseas acquisitions due to concerns about systemic risk. While the move is mainly aimed at large companies, everyone could be brought under control.
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