How To Smuggle Money Out Of China

Tyler Durden's picture

With Chinese authorities clamping down on the shadow-banking system, taking action of their bubble-bursting reforms, and now increasing the trading bands on the Yuan (to increase volatility and hopefully unwind, in a controlled manner, the biggest and most one-sided carry trade in the world's markets), we thought it perhaps surprising that growing numbers of Chinese are using UnionPay - a state-backed bank card - to illegally funnell billion of dollars out of the country. As Reuters reports, its unclear why the PBOC has not clamped down on this as documents show they are well aware of it... and as one clerk noted "don't worry... everyone's doing it."



Via Reuters,

Growing numbers of Chinese are using the country's state-backed bankcards to illegally spirit billions of dollars abroad, a Reuters examination has found.


This underground money is flowing across the border into the gambling hub of Macau, a former Portuguese colony that like Hong Kong is an autonomous region of China. And the conduit for the cash is the Chinese government-supported payment card network, China UnionPay.

How It Works:

In a warren of gritty streets around Macau's ritzy casino resorts, hundreds of neon-lit jewellery, watch and pawn shops are doing a brisk business giving mainland Chinese customers cash by allowing them to use UnionPay cards to make fake purchases - a way of evading China's strict currency-export controls.


On a recent day at the Choi Seng Jewellery and Watches company, a middle-aged woman strode to the counter past dusty shelves of watches. She handed the clerk her UnionPay card and received HK$300,000 ($50,000) in cash. She signed a credit card receipt describing the transaction as a "general sale", stuffed the cash into her handbag and strolled over to the Ponte 16 casino next door.


The withdrawal far exceeded the daily limit of 20,000 yuan, or $3,200, in cash that individual Chinese can legally move out of the mainland. "Don't worry," said a store clerk when asked about the legality of the transaction. "Everyone does this."

Why has The PBOC done nothing about it?

The practice violates China's anti-money-laundering regulations as well as restrictions on currency exports, according to Chinese central bank documents reviewed by Reuters. Chinese authorities also fear the UnionPay conduit is being used by corrupt officials and business people to send money out of the country.


It's unclear why the central bank, the Peoples Bank of China (PBOC), hasn't cracked down harder on the practice, although the documents Reuters reviewed show the bank was aware it had become a growing problem.


Industry experts point to a weak enforcement culture in China, a reluctance to hurt Macau financially with 80 percent of the city's revenues drawn from gambling, and a willingness to tolerate some capital flight - especially if it can be tracked through names on bank cards. Moreover, the rapid growth of UnionPay, including the spread of its terminals at retail stores across the world, is playing a key role in China's strategy for making the yuan a global currency.




Any steps to clamp down on UnionPay cashback transactions would likely rattle Macau, because the cash also feeds the casino sector on which the territory's $43.6 billion economy overwhelmingly depends. Macau is now the world's biggest gambling hub, with revenues seven times those of Las Vegas. Last year, gambling revenue rose 19 percent to $45.2 billion. Nearly 40 percent of that went to the government in taxes.

The people are following their money out of the country...

Many card users follow their money abroad. Since the mid-1990s, an estimated 16,000 to 18,000 Communist party officials, businessmen, CEOs and other individuals have "disappeared" from China, according to a separate PBOC report prepared in 2008 - taking with them some 800 billion yuan ($133 billion).

It won't stop soon...

Though relatively unknown in the West, UnionPay has quietly grown to become one of the biggest card brands and payment networks in the world, accepted in 142 countries. There are more UnionPay cards in circulation now than any other brand - 3.53 billion, or nearly a quarter of the world's total, according to the industry newsletter, the Nilson Report. Visa remains the world leader by transaction value with $4.6 trillion in card transactions in the first half of 2013; UnionPay was second with $2.5 trillion.


If UnionPay poses a problem for Chinese authorities, it is a problem of their own making. The card brand is often seen as an arm of Chinese state policy.


UnionPay was established in 2002 by the PBOC and the State Council or Cabinet.




UnionPay dominates the card market in China thanks to a central bank decree that requires all card issuers, including foreign ones, to process their yuan-based transactions through UnionPay's electronic payment network.

And is increasing as capital flight spreads...

Today, the outflow is gathering pace.


In Macau, UnionPay card transactions reached 130 billion Macau patacas ($16.77 billion) in just the first four months of 2012, up from 88.1 billion patacas in all of 2011, according to a confidential report by Macau's banking regulator, the Macau Monetary Authority reviewed by Reuters. Around 90 percent of those transactions were "highly concentrated in jewellery, ornament and luxury watch sales", the report said.


If that rate persisted for the full year, UnionPay sales in Macau for all of 2012 would have reached nearly $50 billion - nearly $45 billion of it for jewellery-related sales, a figure exceeding even Macau's total gambling revenues that year.


"Are these actual transactions? Where does this money come from?" the deputy head of the Monetary Authority, Wan Sin Long, asked in the document.

And there's no limit...

"I would say there's no upper limit for UnionPay," said the black-suited manager, who spoke on the condition he not be identified. "The credit limits aren't enforced at all."


An executive at Las Vegas Sands, speaking on condition of anonymity, said vendors with UnionPay card-swiping machines have been caught wandering around the casino.


"People walk around with mobile union pay card machines on the gaming floor," the executive said. "They are linked to China (computer) servers, not (ones in) Macau. So it is like they are getting cash out in China. When we see them on the floor we kick them out."


That practice also exists outside the casinos, too. Macau's merchants lately have tried to better disguise the UnionPay transactions by routing transactions electronically across the border to China to escape the scrutiny of Macau authorities, a banker in Macau said.


"They closed the Macau tap, but they've opened an even larger China tap," said the Macau banker with direct knowledge of the practice. "The merchants are always cunning."

Backdoor to Yuan internalization and the demise of the dollar?

UnionPay's increasing use overseas is part of Beijing's multi-pronged strategy to eventually open up China's capital account and internationalize the yuan, which is formally known as the renminbi or yuan. Beijing also eased restrictions on many kinds of capital transfers as it gradually loosens up control over the currency, making it easier for money to leave China's borders. The efforts have paid dividends. The renminbi has already overtaken the euro to become the second-most used currency in trade finance, according to data from global transaction services organization SWIFT.


"(China) may be happy to see UnionPay sweeping different markets across the world in different countries and territories," said Yan Lixin, head of Fudan University's China Centre for Anti-Money Laundering Studies in Shanghai. "It is backed up by the government. It is the real son of the government."

And no one seems to care:

"We can remit as much money as you like with your UnionPay card," said a red-haired man surnamed Lai at one jewellery shop. A yellow sign carried the slogan: "Welcome Renminbi. Welcome UnionPay cards."


"You don't actually buy anything," said Lai, standing near a half-empty display case containing a messy spread of watches and jewellery. "We just help people get money out of China so they can gamble more."

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FreedomGuy's picture

China can get a copy of the play book from our IRS and a few other agencies on how to track down their citizens and more importantly, their money.

fonestar's picture

Covert to Bitcoin.  Cross border.  Convert back to currency of choice.

Oldballplayer's picture

That was my first thought, but billions in bitcoin would move the market just a little bit.

Boris Alatovkrap's picture

Boris see sign in Chinese mercantile window:

Yu bai sum ting, eni ting, wi pei yu mo ni. Ebeli ba di du seim ting, ebeli dei. Yu kan tu!

zipit's picture

Market cap of Bitcoin will rise to whatever level is necessary to handle whatever volume of transactions need to flow through it.  That said, the more spikey the demand, the more sudden and dramatic the market cap changes will be.

wallstreetaposteriori's picture

No shit douche.... this is why china is banning bitcoin... your orgin of ethnicity has been pushing the largest bubble in history thought capital flight.  AkA... borrow as much Yuan as possible, convert yuan, buy shit around the world pushing up prices, then DEFAULT on the Yuan loan....  I hope you all get beheaded on US tv.

iLiquid's picture

In China there's a saying: The rich got rich by not paying their debts.

Buck Johnson's picture

You know why the authorities in china aren't cracking down.  It's because those authorities are the same corrupt officials or their family members who are laundering their stolen gains out of the country before it collapses.  You see they know when the money dries up and things implode their will be another surge of populism and nationalism that happened decades ago.  Where the rich where killed and the party took over.  The rats are getting out before the boat sinks.

ebworthen's picture

"... is playing a key role in China's strategy for making the yuan a global currency."

That makes the most sense.

Boris Alatovkrap's picture

Ultimate goal of PBOC:

Yuan bai fo lein ting, yu kan pei in ren min bi!

Peter Pan's picture

My late father woukd often say, that given the chance, even die hard communists become rabid capitalists.

Makes me wonder whether that Malaysian jet disappearing was really a set up by the Chinese passengers who have now landed in outback Australia in the hope of some amnesty for illegal immigrants.

CrashisOptimistic's picture

Diehard capitalists in the world upcoming will become rabid communists when they go door to door asking if anyone has any spare food.

Make_Mine_A_Double's picture

It's even easier than described in the above. Every city to include the 2nd and 3rd tier PRC cities has the Triads whom have been around much longer than the Party and be around long after their gone.

Simply hand over x amount of gold or currency and specify where you or your family member would like to meet in Canada or the USSA with the equivalent amount of hard currency waiting for you. No border controls, no paper trail.

Less 10% of course - transaction fee.

That's how up North in VAN (and presumably in Kali) you get these ChiComs showing up buying properties with literally briefcases of cash money.


logicalman's picture

Cash does have a way of smoothing transactions, but I wonder how much the real estate guys lose to the 'transaction fee' when they try to do anything with all that cash.

I'm guessing the equivalents of the Triads at the other end.

Has a certain symmetry (in more ways than one!)

czarangelus's picture

Exactly like the entrepeneurial strategy of the Knights Templar, eh? I couldn't help but smile when I compared the contents of your post to your avatar.

MarcusAurelius's picture

Simply take your own overvalued Chinese property and buy Canadian over valued property to keep the bubble going here in Canada. Canada's government recently figured this out and supposedly put a ban on Chinese visa's about ten years too late but never the less they did. Subsequent law suits against the Canadian government by the denied Chinese should prove interesting in relation to the outcome. 

 Well there's always Canadian natural resources and companies to buy. We need all the cheap credit liquidity that we can handle to keep the bubble going now that everyone here in Canada is convinced that properties 40-60% over-valued are normal.

"Bubbles are here to stay" Federal Reserve. 

logicalman's picture

I've decided to not take part, but just sit back and watch.


Dr. Bonzo's picture

Thank god they haven't found Fernando's.

frenzic's picture

Fernando's new beginnings:

cinco cinco cinco nueve dos nueve dos

Kreditanstalt's picture

The video reporter is trying to defend...what?? what if it's '"illegal"??  "Illegal" merely means the government doesn't like it, not necessarily that any fraud or theft is going on.  And it ISN'T.

This is a good thing for individual freedom. 

zhandax's picture

Yes, this is a Reuters fluff piece to simulate investigative reporting.  Why hasn't the PBOC done anything?  "Nearly 40 percent of that went to the government in taxes."  The remainder went to the Macau casinos, which didn't get built without an ongoing agreement to grease the appropriate palms.

Atomizer's picture

You set up a fake Apple store and manufacturer clay gnomes imbedding gold bullion coins. If it fits, it ships under USPS protocol.



A Lunatic's picture

I think the two most important points to consider when smuggling money out of China are 1) have some money and 2) be in China.........

zhandax's picture

You left out 3) actually get it out of China.  Macau is analogous to smuggling your money out of the US into Puerto Rico.

windcatcher's picture


The top .01 percent of the population that condone and practice Corruption, Greed and Fraud has been the downfall of mankind and “civil” civilization since the beginning of recorded history..


Aristotle, the father of all science and structured deductive thinking in the western world, defined truth and honesty and its opposite lies (propaganda) and fraud.


Confucius, Lao Tzu and other Oriental philosophers also recognized the difference between good and evil and the consequence of allowing evil to prevail and rule over honesty and truth.


The Twenty First Century has become the end battle ground between Good and Evil. We will see if the Chinese clamp down on Corruption, Greed and Fraud.

Typing Typer's picture

Maybe the Chinese commies are trying to let more of the regular population cash in on recent national spoils, to lessen the social outrage as the hyper-debt and malinvestment pays its inevitable returns.

Stinko da Munk's picture

They're buying condos in Hawaii. Everywhere you look the trophy condos are being bought by Chinese through some very clever fronts.

q99x2's picture

Print fiat money and give it to me and I'll buy up the United States of America for ya.

Hell I'll buy up the entire world with that funny money. No problem as long as the globalist traitors commit treason against their respective nations.

Ifigenia's picture

Sometimes i think the commie regime is better than the one we have in the West. If not, why we see their corrupts run to the West and not the contrary? Why Cozine, Soros, etc. havent run to China? Here the corrupts and powerful dont have to respond to Justice. V.g., does any banksters have go to jail for the ponzi sheme that defraud trillion of dollars and throw us in this mess?

Ban KKiller's picture

Gambling is for suckers. Although all the neon is pretty at night. 

Chinese always outshine us when it comes to corruption. They have a few years on us. Vancouver is all Chinatown now. Makes for good eats. 

Ifigenia's picture

Transform those aircraft-carriers groups to casinos and anchors them outside China territorial waters, use helis, destroyers and torpedoes boats to go to their cities, ports and up rivers to trasnsport those inverterates gamblers to the floating casinos. Wellcome to the new gunboat policy and the chineses love it. A win-win for all.

laomei's picture

Annnnd the bit deal is what exactly?  It's also possible to max out a credit card the same way for a long long long time.

Dewey Cheatum Howe's picture

A little aside on China and their knife wielding 'seperatists'. Language people notice they are 'seperatists' not rebels or something else.

And the region they reside in.

Xinjiang Uyghur Autonomous Region,[3] is an autonomous region of the People's Republic of China in the northwest of the country. It is the largest Chinese administrative division and spans over 1.6 million km2. Xinjiang borders Russia, Mongolia, Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan and India. It has abundant oil reserves and is China's largest natural gas-producing region.

Hmmm who else is an autonomous region why ............. Crimea and what do we call Crimeans?

And to pipeline wars.

The pipeline is owned and operated by PetroChina West–East Gas Pipeline Company, a subsidiary of PetroChina. Originally, it was agreed that PetroChina would have owned 50% of the pipeline, while Royal Dutch Shell, Gazprom, and ExxonMobil had been slated to hold 15% each, and Sinopec 5%. However, in August 2004, the Board of Directors of PetroChina announced that following good faith discussions with all parties to the Joint Venture Framework Agreement, the parties had not been able to reach an agreement, and the joint venture framework agreement was terminated


The Central Asia–China gas pipeline (known also as Turkmenistan–China gas pipeline) is a natural gas pipeline from Central Asia to Xinjiang in the People's Republic of China.


Some more info


I suspect we will be hearing alot more about these 'seperatists' in coming months and our support for their right to autonomy.....



Dewey Cheatum Howe's picture

Some more reading


Establishing control over the Xinjiang Uygur Autonomous Region means getting a springboard for US penetration into the heartland of Eurasia. For instance, the geographic position of Kazakhstan makes it kind of a buffer zone against the Islamic radicalism coming from Afghanistan. Crossing the Kazakh territory, radicals would get to Russia (Kazakhstan borders on Astrakhan, Chelyabinsk, Saratov, Volgograd, Novosibirsk, Omsk and Tyumen regions of the Russian Federation). Muslim Bashkiria and Tatarstan are in the vicinity.

While the USSR contained the spread of Islamic extremism, having tightly closed the southern border, Kazakhstan and Western Siberia remained parts of the Soviet Union. It has all changed by now. The US intervention into Afghanistan has exacerbated the situation near the southern part of Russia. In case the US gets a foothold in the Xinjiang Uygur Region, the things will exponentially worsen, there are many Uyghurs living in Central Asia (250000 in Kazakhstan, 60000 in Kyrgyzstan, 50000 in Uzbekistan etc).

The Region is rich in oil and gas, as well as rare-earth metals. There are 52 minerals extracted there. It’s an important trade and transportation hub, an economic center of western China. The Chinese commodities cross its territory to get transported to the Pakistani port of Karachi and then to South Asia. Pakistan and China are strategic allies, the destabilization of Xinjiang would hinder the flow of goods from Islamabad to Beijing. The Chinese law enforcement agencies report there are people on the wanted list in Pakistan among the dead Uyghur separatists. At that Beijing does its best to have good relations with Islamabad (1).

There is a major telecommunications project under construction – the Trans-Asia-Europe Fiber Optic Line, which is to connect Shanghai, China and Frankfurt, Germany passing through the Region (2). Oil and gas flows from the Caspian will cross it on the way to the Asia-Pacific. The Region borders on Tibet. The hue and cry raised by Washington from time to time over the human rights violations in Tibet is a trick the US propaganda machine resorts to while waging an information war against China.



soopy's picture

Breaking news.

elwind45's picture

I thought this was a gold bull site!

elwind45's picture

....and it came to pass throughout the far and wide that the peoples thought the thriftest were actually not very thifty the end.

novictim's picture

hahaha...the Chinese fairy tale in a nutshell.
And now we know the "who and how" of soaring California home prices.

Just think!
All this Chinese borrowed money...a massive *8 times* the Chinese GDP with nothing but the "value" of empty cities and empty office buildings as a fractional collateral, is being laundered by way of real estate purchases with the blessing of US officials and the Fed.

Chinese funny-money backed "investment" firms are getting away with turning this country into a RENTER NATION just so that the facade of a "vibrant", capitalist economy with "fair and open markets" can be maintained for as long as possible.
The lies are backstopping the lies. This is going to end badly and soon.