Wealthy Chinese Rushing To Move Cash Abroad Ahead Of Yuan Weakness

Wealthy Chinese citizens are going to great lengths to move money out of the country amid worries over a weakening Yuan and growing trade tensions with the United States, according to the Nikkei Asian Review.

China caps foreign exchange to $50,000 per year, per person. For overseas investments, buyers typically use multi-member families to pool their funds and exceed the limit, or they will bring cash while traveling abroad - a strategy which has been put on hold during the pandemic travel bans.

"There is no room for negotiation today," a black-market currency dealer said when approached on West Nanjing Road, a bustling commercial strip in Shanghai, last week. "It's going to be 7.2 yuan to the dollar."

The official rate was 7.06 that day, but the man, who was a little past his prime, was defiant. At one point late last month, the yuan had sunk to 7.19 in overseas trading. He was confident in the direction of the weakening currency. 

"Oh, I can help you send money overseas too. I have a friend who can do that," he said, before quickly leaving the scene. Police in the area are said to have become a bit stricter of late. -Nikkei Asian Review

Not only are affluent Chinese setting up more dollar accounts in Hong Kong to send money overseas, interest in foreign real estate and insurance products are making a resurgence as the coronavirus pandemic has abated - or paused.

One investment company is pitching real estate in Ireland - touting it as immune to deteriorating relations with the West. Returns? " At the end, the executive showed a 1.32 million euro ($1.5 million) home with an expected return of nearly 3%," according to the report.

The talk was the latest of a series of webinars hosted since May by Juwai, a Chinese brokerage specializing in emigration, real estate and education opportunities abroad. Malaysian and Japanese properties have also been featured.

Such locations as Malta and Cyprus are growing popular, according to another brokerage. -Nikkei Asian Review

According to French bank Natixis, Chinese capital outflows amounted to just $1 billion in the first quarter of 2020 due to travel bans putting the brakes on the outbound movement of funds. Once the borders reopen, that is likely to increase.

"The yuan weakened more than 10% in two years," said one insurance broker in Hong Kong whose products are denominated in foreign currencies. "You need foreign currencies to protect your assets."

Meanwhile, rich Hong Kong residents are similarly beginning to shuffle cash overseas - opening offshore accounts, applying for new passports, and reducing their exposure to Hong Kong in a way that allows them to tap into their assets at a moment's notice, according to Bloomberg.

Private bankers say their clients accelerated contingency planning efforts after China announced last month it would impose controversial national security laws on Hong Kong. The legislation threatens to erode the former British colony’s judicial independence, provoke sanctions from the U.S. and revive street protests that battered the tourism and retail industries even before the coronavirus outbreak plunged the economy into its deepest recession on record. -Bloomberg

"What we’re basically seeing is a bit like a slow-moving train wreck," said Richard Harris, CEO of Hong Kong-based Port Shelter Investment Management. "People who haven’t moved their money out may be tempted to think: ‘Well, maybe I should be moving my money out.’ That process is likely to continue."

That said, Bloomberg and Nikkei both acknowledge that we're not seeing 'widespread capital flight' just yet - but the ground is being laid, and money is beginning to move. Bloomberg notes that Hong Kong bank deposits increased to a record in April, while the city's currency has remained robust against the dollar, a sign of 'persistent inflows.'

That said, Bloomberg also points out that "many Hong Kong entrepreneurs and high-earning professionals are sounding a more pessimistic note."

Sam, a senior investment banker in Hong Kong, has decided to leave the city. The 43-year-old is emigrating to Australia with his wife and two young boys in about three months, the second time he will have left Hong Kong during a period of political turmoil. Sam grew up in the city, but moved to Brisbane when he was 12 after his parents got spooked by China’s crackdown on protesters in Beijing’s Tiananmen Square in 1989. He came back to Hong Kong 20 years ago for his career but now sees no upside to staying.

“Things are looking bad and deteriorating,” he said. “We may as well pack our bags and move to Australia so that the kids can have a better environment growing up.”

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Margaret Chau, a Hong Kong-based immigration program director for Goldmax Immigration Consulting Co., said inquiries at her firm have jumped about five-fold after news of the national security legislation. For now, most of her wealthy customers are more interested setting up an escape route than leaving right away.

They see this as a backup plan,” Chau said.

Kerry Goh, chief executive officer of multi-family office Kamet Capital in Singapore, said his clients have shifted from asking generic questions about moving out of Hong Kong to making detailed inquiries about everything from schools to visas and bank accounts.

“What’s happened in Hong Kong has really sped up the timing of 2047,” Goh said, referring to the expiration date of China’s 50-year pledge to preserve Hong Kong’s autonomy after the handover from Britain. “As Hong Kong’s troubles shoot up, the benefits of Singapore have become more self-explanatory.” -Bloomberg

"I could buy a much bigger flat in London, so why not?" said 34-year old Hong Kong executive, 'Dennis,' who says his family and many of their friends have begun moving cash out of the city. "I’m just trying to protect my money against any uncertainty."