Here's The Ultra-Clever Way That The Chinese Are Circumventing Capital Controls

Tyler Durden's picture

Submitted by Simon Black via SovereignMan.com,

Well, it happened again.

China’s stock market plunged, sending more than half a trillion dollars to money heaven.

What a surprise, it turns out that a massive credit bubble is actually unsustainable and will eventually burst. Shocker.

And just like what happened last year when Chinese stocks tanked, the government is stepping in to centrally plan the stock market recovery.

Last year we saw some of the most extraordinary tactics; China’s government jailed short-sellers (i.e. people who bet on stocks declining), and they even encouraged their citizens to BORROW money against their homes to buy stocks.

But no centrally planned bailout is complete without the cherry on top– capital controls.

Capital controls are like a bear trap for your savings. They’re what governments impose when they want to hold your money hostage.

In Europe, for example, governments have propped up failing banking systems by imposing withdrawal restrictions, preventing people from taking out too much of their own money.

The ultimate example of this was the Cyprus bank freeze back in 2013, when the government locked an entire nation out of their bank accounts.

(This is one of the most important reasons why a critical component of any Plan B is to hold some savings offshore at a well-capitalized foreign bank in a jurisdiction with minimal debt.)

The ongoing war on cash is another form of capital controls.

Governments and economists around the world are increasingly calling for outright bans on physical cash, claiming that only criminals and terrorists need to use cash.

In reality, though, banning cash forces people to keep their money inside the banking system.

And in Europe in particular, the banking system is in pitiful condition—highly illiquid, poorly capitalized, and now starting to pass on negative interest rates to customers.

(This is a big reason why it makes sense to hold some physical cash—another important part of a Plan B. More on this later in the week.)

Perhaps most commonly, governments impose capital controls to prop up a failing currency, preventing people from taking money out of the country, or conducting any foreign exchange.

This has long been one of the dominant forms of capital controls in China.

Last year amid China’s ongoing financial crisis, the government there tightened some forms of capital controls (curiously while loosening others).

Chinese citizens now have strict limitations on the amount of money they can withdraw while traveling abroad, plus restrictions on how much money they can transfer overseas.

But for any Chinese citizen with savings right now, it’s pretty obvious what’s happening. And they want to get their money out of the country.

Chinese have an inherent distrust of government. They don’t sing pointless songs about their freedom.

Chinese people know that they’re not free. And they know they need to take steps to do something about it before they get wiped out.

But it raises a difficult question– how do you get money out of the country when the government has imposed strict capital controls?

With a little creativity, there’s always a way.

Bitcoin has been a popular alternative in China because people can easily cross borders with vast sums of money encrypted inside their mobile phones.

But there’s a new tactic that Chinese are using now: domains.

Yes, those domains. As in Internet “.com” domains.

The domain business used to be a thriving industry. No doubt, people made huge sums of money in the great “.com land grab” more than a decade ago.

But all the good domain names have been gobbled up, which means that domains can now be very expensive.

Facebook bought FB.com for $8.5 million five years ago. Sex.com sold for $14 million in 2014. 360.com sold for $17 million last year.

It’s not unusual for a domain to sell for millions… and a five or six figure price tag is nothing.

(When I started my bank last year, I found that any .com domain with the word “bank” in it cost anywhere from $10,000 to $350,000. Unbelievable.)

So it’s safe to say that most of the easy money has already been made in buying and selling .com domains.

But… Chinese aren’t looking to make money. They’re not buying domains as investments– they’re using domains to TRANSPORT money.

Think about it– if you have $50,000 that you really need to get out of China, you can buy an expensive domain today.

Naturally there are no restrictions (for now) on buying a .com domain. So the sale goes through without any problems.

But domains are international. Almost anyone in the world can buy or sell a .com domain.

So later, you travel overseas, open a foreign bank account, then sell your domain to someone else.

The proceeds of that sale get paid to your new bank account abroad. And, presto! You’ve just moved a lot of money overseas, completely circumventing capital controls.

Naturally there are some costs involved, including some brokerage fees for buying/selling the domain.

But for Chinese citizens whose alternative is to let their savings remain trapped within a failing system, they’ll gladly pay a few percent to move their money abroad.

I find this an incredibly clever solution. It’s the digital equivalent of moving money using rare coins and collectibles.

A lot of folks may be surprised to find that many rare coins can cost thousands, tens of thousands, even millions of dollars.

You can buy a rare coin and transport vast sums of wealth across a border with nothing more than an old nickel in your pocket.

Domains are an even more elegant solution because it doesn’t even exist in the physical world.

It just goes to show that no matter how destructive a government gets, no matter how desperate their measures, there are always ways to defeat them.

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y3maxx's picture

Who knew, Bitcoin to the rescue!

nmewn's picture

The internet is very tightly regulated (dare I say controlled) in communist-neo-fascist (whateverthefucktheypretendtobetoday) China.

Oh...but but but BLOCKCHAINS and and and PASSWORDS and and and #MyBitAccountIs404'd...bitchez!...bitchez's?...hello?...lmao!

SILVERGEDDON's picture

Confucius say " Even blind pig can find acorn. "

38BWD22's picture

 

 

I have a domain name that I just bought for my own reasons.  I will put it on sale only for A LOT of money.  Barring that, I will work on my new website until it looks great...

:)

Chinese wanting to buy an overpriced oceanfront condo may want contact me.  

Or I will buy Bitcoin for cheap.  I will pay cash, wire, check, gold, etc. if the deal is good.

Seriously, but the money has to be great.  No charity.

Illegal or dirty money not welcome.

NoDebt's picture

Why not just buy a private jet and sell it wherever you land?

 

conscious being's picture

France had capital controls. Some French guy was buying sail boats, sailing to the Carribean and selling.

beemasters's picture

How about just buying lots of stuffs (like gold/silver coins) on EBay, make sure they are received in the country you plan to cash out and resell/open a shop/garage sale there?

Domain names? Blah. You might be stuck with some names no one wants to buy.

FireBrander's picture

"You can NEVER leave" forever....

 

Deals planned to recover illegal assets from abroad


"The People's Bank of China is in discussions with the US Financial Crimes Enforcement Network, a bureau under the US Treasury Department that monitors financial transactions to fight crime, said Zhang Xiaoming, deputy director-general of the ministry's legal assistance and foreign affairs department. Preparations are being made for a bilateral agreement to target assets that Chinese suspects hold overseas, Zhang said in an exclusive interview."

"Once law enforcement officers in the US and Australia identify illegal funds, they will immediately initiate judicial procedures to freeze and confiscate those criminal proceeds in their countries. More than half the known corrupt Chinese officials have transferred their illegal assets offshore and escaped to the US, Canada and Australia to avoid punishment, the Ministry of Public Security said."

http://usa.chinadaily.com.cn/us/2014-12/29/content_19196310.htm

Bunga Bunga's picture

Dare to understand a littel bit how bitcoin works and what governments can or can't do against it?

RedDwarf's picture

The fact that you have 5 upvotes at this time for your comment shows just how deep the ignorance on the bitcoin and IT technology on ZH still is.  You're using the Anonymous / Guy Fawkes mask, I would have expected you to have at least basic computer knowledge.  Sure a government can shut down an exchange like MtGox, (one reason to not use them), or they can block the standard port for bitcoin (8333) if you have a 'national firewall'and so on, but in the end these are stop-gap measures or easily worked around.  The blockchain is stored in the cloud, so long as you have basically any kind of interenet access you can get to it.  You can even literally just memorize your key and go to another country and then access your BTC.

besnook's picture

the two most difficult negotiators in the world(generally speaking for those i may microaggress) are chinese and jews. what makes them tough is the deal is never completely signed. it is a permanent negotiation. personally, i avoid doing business with either. it is just way too much trouble.

having said that it make sense that the end game is between the two of them. the chinese win jsut because of the overwhelming population advantage but the jews will make it fun before it's over.

Occident Mortal's picture

You appear to have contracted verbal diarrhoea.

Row Well Number 41's picture

The mere mention of microaggressions on ZH SICKENS me.

besnook's picture

do you need a sarc tag to make you feel better?

11b40's picture

As someone who deals, and has dealt, with both for many years, I will say that I have never been chiseled on my commissions by a Chinese vendor.  Once struck, they have always been honored.  On the other had, my personal experiences with some of the tribe have not been so pleasant.  Not all, by any means, but the more pious they are, the closer you better watch your wallet.  Just one man's observations, but I do observe my money closely.

mkkby's picture

It's really easy to do business and not be scammed.  For any transaction of a larger amount -- use an escrow service.  No money changes hands until the goods are delivered and inspected.

Use it for any person of any nationality.  Even if you think you know them.  I've seen family members in desperate straights fuck each other.

Consuelo's picture

 

 

And it stands to reason.   Both are 5000+ year-old civilizations and have learned a thing or two about the ins & outs of human nature and how to exploit weaknesses in negotiating... 

SuperVinci's picture

+1 for old civilizations/cultures. They didn't achieve that by being all diverse, progressive and equal either.

BarkingCat's picture

I think you stretched the Jews back a bit too far.

nope-1004's picture

So later, you travel overseas, open a foreign bank account, then sell your domain to someone else.

 

Cuz prices of domains are like houses and can never go down?

Such a simple explanation.  Maybe Simon can start a TV show called "Flip this Domain", or a reality show called "The Next Sucker Will Pay Me More Than I Paid - Forever".  That latter one I think is called New Age Economics.

lmao 

I guess the tax implications from the domian sale once in the new jurisdiction are beyond the scope of this advice.

Redneck Hippy's picture

I think, in this case, there is no profit anticipated, most likely a loss, so no negative tax implications to the Chinese buyer then seller.

Is it just me, I wonder, but here I am almost retirement age and I have never once kept more money in a bank than I needed to pay next month's bills. Are there people with so much money, they just don't know where to put it? It mystifies me.

Sanity Bear's picture

There are people who steal money and need to abscond with it in such a way that it can't be recovered by its rightful owner.

twh99's picture

Exactly!

I own a business with a .BIZ domain and a particular broker emails me every year wanting to sell me the .COM for 5 figures.  I have told them I will give them $500 and that if they could sell it for 4 or 5 figures they should do it and leave me alone.

It has been 4 years now and they contact me like clockwork and the coversation is repeated.

Maybe one of these days they will be desperate for $500.

harrybrown's picture

Gold/silver still out shines everything else period & always will

RedDwarf's picture

Gold and silver are not the same thing.  Conflating them is a mistake.  Silver has huge industrial uses, gold does not.  Also they have not always outshone everything else.  At times food or guns rule the day, not gold or silver.  Sometimes fiat cash has outperformed, or stocks.  In addition gold and silver are physical, they do not come close to bitcoin or this domain plan for getting around capital controls.  You think these Chinese citizens should try to slip gold bars through customs?  Ridiculous.  You're just spouting talking points.  Gold and silver are great, but they are not the best option for all times and all places and all circumstances.

Sanity Bear's picture

There's at least one method of transporting physical gold in such a manner that customs inspectors or any other form of highwaymen are astronomically unlikely to detect it - in solution!

38BWD22's picture

 

 

But Aqua Regia (nitric acid mixed with hydrochloric acid) is very hazardous, might have trouble getting that on the plane...

But I do like the way your mind works!

Midas's picture

I know this dude in India that sports a gold shirt.  What happens when he boards the plane?

NoBillsOfCredit's picture

gold has huge industrial uses also but it costs too much. why do people keep saying gold has no industrial use? That is pure stupidity and ignorance.

BarkingCat's picture

And they do this on a computer or cell phone which has gold in it.

Gold contact are used because they do not tarnish 

RedDwarf's picture

I never said it has no industrial uses mr. "I suck at reading comprehension".  I said it has no 'huge' industrial uses.  Far more silver is mined every year than gold and a far larger % of said silver is used industrially than gold.  This means silver has far more industrial demand than gold and this is why they should not be conflated.  If an industrial use for gold is found for which there is no substitute and said use is of higher value than it's use as a monetary store of value then gold will become an industrial metal like siver has.  Gold is not too expensive for industry, it is too expensive relative to it's uses in industry vs. it's uses monetarily.

conscious being's picture

If Chinese buy gold and silver as their .gov has advised for some time now, they don't have to jump thru hoops to avoid their RMB savings depreciating. Of course, they could have other reasons to try to sneak wealth out.

Occident Mortal's picture

But gold or silver can be stolen or lost.

If you learn a valuable skill, then that cannot be stolen from you.

Gold is good if you need to store enormous wealth, but for the average person? Better to invest in yourself.

Redneck Hippy's picture

Actually, I think a really clean incandescent light bulb outshines either gold or silver by quite a lot.

SgtShaftoe's picture

As countries tighten their grip, all other assets that assist their owner in flight will benefit.  Gold, sure, obviously, but you need to be creative in hiding / caching it.  Bitcoin, is a pretty transactionally cheap way to get your net worth out of anywhere.  Bitcoin, Gold, Silver, Platinum, and any other assets that easily allows people to smuggle wealth should do well in the next 10 years.  Diamonds after all are so 1930s.  Paying off the guards is awfully expensive as well. 

RedDwarf's picture

Bitcoin, domain names, both are examples of digital 'property' allowing an easy by-pass of capital controls.  Fact is most fiat is also digital now.  I'm tired of the bitcoin vs. gold stupidity.  Gold for store of value and security, bitcoin for doing transactions and getting around capital controls.  Different tools for totally different purposes.  Gold used to serve all monetary purposes - unit of account, store of value, currency.  In the modern world all 3 functions are being split apart.  The technology of money is moving faster than governments can keep up, at least for now.  Capital controls are going to become less and less effective, and governments are going to go ape-shit over it.

JTBfromtheWL's picture

I've been a domainer for some time, buy/sell/holding. The chinese have really lit a fire under the value of some 4 letter and Number .Coms. Personally I buy gold related domains :)

JTBfromtheWL's picture

4L is like TBNM.COM or CRPH, just random letters. in the last year those have gone from ~100 to over 1000$ each. 2-3 Years ago you could pick them up for around $30. Numeric domains have gone up even more.

WTFUD's picture

Snap. Crackle and Pop.

Wake me up before you go go
'cause i'm not hanging on like a yoyo . . .

aah, they dont make music like that anymore . . . thank f...

Exciting Times , a changing of the Old Guard.

Kirk2NCC1701's picture

You DO realize that the us.gov (irs) reads simon's stuff.

Where he (and his public advice) goes, they follow. Duh!

Baron von Bud's picture

Interest rates are low because there's too much capital and too little return. The Chinese need to escape with their capital. Domain names? - why not. We all need to protect our capital. I have a bad feeling a lot of it will be evaporating over the next year. Stocks, bonds, art etc. All overpriced. Vanguard is moving all its brokerage sweep accounts into the Federal MM Fund VMAXX. They stated explicitly in a letter to all their investors that they are concerned about gates and market turmoil. They don't want their investors in anything with repos or counterparty risk. This should be fair warning to all that a lot of capital is at risk. May disappear via bank account confiscations and derivative losses.

https://investor.vanguard.com/mutual-funds/money-market-reform/

 

 

East Indian's picture

"China’s stock market plunged, sending more than half a trillion dollars to money heaven."

 

where their ancestors can use it. Chinese need not burn dummy currencies in their funeral rites for a while :D

mijev's picture

www.chink.com is for sale if anyone's interested.

DIGrif's picture

China’s government jailed short-sellers.......now there is something I agree with and should be instituted here in the USA. It only promotes manipulation and speculation.....

Dragon HAwk's picture

I like the guy who said on ZH.. here that he traveled with a Platinum good luck charm in his pocket 8k of transferable cash that nobody in customs even knows what platinum looks like..

  that and the Chinese ladies who travel abroad decked out in all kinds of gold rings and necklaces and come back with naked arms

onmail1's picture

The new gold standard

beats even the bitcoin

Great

until the dragon comes knocking at the door

 

Perfecthedge's picture

I might be wrong, please correct me.

Would this scheme work:

Chinese wealthy man 1 buys domain (probably from an American). Now he travels out of China and opens a bank account in a foreign country. He now sits on a very expensive domain, that will not necessarily sell (I've done domain flipping myself and some domains sit there for YEARS). It is not assured that he will sell, sell quickly or sell without a huge loss.

Now, Chinese wealthy man 1 contacts Chinese wealthy man 2 and sells him the domain (maybe with a small loss). Gets the money and fills his bank acccount. Happy, happy Chinese wealthy man 1.

Chinese wealthy man 2 now travels to the same location. Opens the bank account and contacts....you guessed it: Chinese wealthy man 3...and so on.

This would drain the money out of China...until they cannot find one more wealthy guy. So the last one would get bitten by the dogs. He could always sell the domain back to the original American guy (because he now thinks that there is a HUGE demand for this domain and being a greedy sucker, he buys it back to make moooooore mooolaaahh! Or even better: they show the amount of transactions around this domain to a jew...)

Maybe this is too simple and there is a flaw in my thinking. Would like to hear the experts...

de3de8's picture

There are probably domain sellers out there that provide just for this "service". Fees likely generous considering how well it works.......for now.