"Money for the purchase of overseas property or insurance products can not be wired": Banker in China
The Chinese State Department for Foreign Exchange (SAFE) has introduced a series of new exchange controls, against which capital flight from China to others must take place Countries, in particular for real estate investments of Chinese individuals and companies. These new exchange controls include restrictions on real estate investors, which make it nearly impossible to raise funds through foreign currency debt, and more stringent control of the Chinese banks that handle these transactions in China "abnormal", which would allow SAFE to curb outflows through the banks. However, according to the Nikkei Asian Review, SAFE did not disclose the criteria used to classify the situation as "abnormal" and overseas transfers could be blocked at the convenience of SAFE.
When SAFE sees the situation as "abnormal," banks are scrutinized and ranked by the amount of yuan they transfer to other countries and the amount of foreign currency they sell. If you are too interested in this type of activity, SAFE can limit your other banking activities.
In addition, the agency has instructed the banks to obtain further documentation before processing transfers of funds to other countries. For example, parents who want to pay school fees for their child in the US must submit a letter of admission from the US university. For other types of transfers of funds to other countries, the Bank must be provided with various types of documents, such as work permits.
The idea seems to be to allow Chinese citizens to go overseas and do normal things, such as studying, but not investing in foreign real estate.
"Money abroad can not be wired for the purchase of real estate or insurance products," said a representative of a secondary Chinese bank to Nikkei.
Chinese real estate developers investing in foreign real estate projects are facing stricter restrictions on issuing foreign currency bonds and loans. The issue of foreign currency debt was a popular form of financing for foreign real estate adventures. Now most of these developers are burdened with high foreign currency debt and are burdened by low credit ratings. The combined foreign-currency debt of these real estate developers was $ 1
The depreciation of the Chinese yuan against foreign currency has made it even harder for these companies to provide foreign currency debt. And the yuan has been quite a ride.
The yuan fell to 7.17 yuan against the US dollar on Thursday, an 11-year low, before tipping back to 7.15 yuan against the US dollar on Friday. From 2012 to 2016, when much of this foreign currency debt was spent, the yuan moved between $ 6.1 and $ 6.4 per dollar.
The National Development and Reform Commission, quoted by Nikkei, has informed these real estate developers that they can only issue foreign-currency-denominated debt securities with a maturity of one year or less, refinancing only existing debt, but not raising new funds. This will essentially prevent these companies, already overburdened with debt, from financing new foreign real estate investments.
China's foreign exchange balances have been relatively stable since the 2015-2016 panic when reserves plummeted ($ 3.1 trillion in July 2019), nearly a quarter of $ 4 trillion to nearly $ 3 trillion, and this capital flight was made by the Capital controls carried out at this time (graph on Trading Economics):
The year 2016 – as much The number of panicking foreign exchange controls has widened. This was also the year when Chinese companies bought real estate at top prices in the US. Relative to buyers' purchases from China and Hong Kong, they plunged 58% to $ 13.4 billion over the last two years over the twelve-month period to March 2019, according to a recent National Association of Realtors report.
In Australia, declining real estate purchases by Chinese buyers are said to have contributed to falling real estate prices in Sydney and Melbourne.
A similar dynamic has set in Vancouver, BC. However, over the last two years, the Government of British Columbia has sought to curb the influx of foreign investors through various fiscal changes and is now seeking to lift money laundering coverage of real estate.
Enjoy reading the WOLF STREET and want to support it? Using ad blocking – I understand why – but you want to support the site? You can donate "beer money". I really appreciate that. Click on the beer mug to find out how:
Would you like to be notified by e-mail when WOLF STREET releases a new article? Sign up here.