The fact that the Chinese government is doing its utmost to control its currency and that Chinese companies and wealthy individuals suffer from this is clear. At the same time, however, one tries to do everything possible to bypass these currency registrations. This chapter will discuss the various ways how Chinese avoid currency registrations in China.
One can use a currency exchange office in Hong Kong, where one makes use of the transfer of money. A concrete example is as follows: “Chinese go to Hong Kong and open a bank account there. Hereafter you enter the bank account’s account number from Hong Kong to the currency exchange office, and then transfer funds from the Chinese bank account to the currency bank’s Chinese bank account. Finally, the exchange office transfers the money in Hong Kong to your bank account in Hong Kong. ” (Knopers, 2015)
In this way, the transaction is in fact within China and thus falls beyond the $50,000 settlement. Of course, you pay transaction costs at the exchange office, but after that you are free to do with the money he or she desires. In Hong Kong, it is also possible to apply for a mortgage, using Chinese assets as a security. In this way, it is possible to invest in Hong Kong in real estate without being stuck to the Chinese currency.
Another widely used method in Hong Kong is by using a Chinese credit card and making purchases in Hong Kong or Macau (gambling town near Hong Kong). You buy valuable goods like watches or gold, and then sell them back for cash in Hong Kong or Macau. In this way, the maximum amount of $50,000 can be easily avoided.
In China, Bitcoin is incredible popular, not necessarily to use Bitcoins as a means of payment in China itself, but as a means of exchange. Chinese money is exchanged for Bitcoin to exchange them for a foreign currency later. The government and the banks are out of control when it comes to Bitcoins and, in this way, it is quite easy to avoid the limits imposed by the Chinese government.
Cryptocurrency and, in particular, Bitcoin will of course not only be used to bypass the currency restrictions. Cryptocurrency also uses gambling or other illegal activities in China. Because Cryptocurrency basically only has a digital existence, it will be difficult for China to fight all the Cryptocurrency. A solution could be to exert more control over Cryptocurrency by offering them, for example, themselves through the current banking system or opening a regulated exchange.
Other avoidance methods
In China, everyone can basically use the $50,000 scheme, which means that if you want to move more money abroad you can ask others to help you move more by using their yearly limit. This method is called “smurfing”, and this method is not allowed and is being sharpened by the new measures.
Suppose you want to make an investment abroad as a company or as a wealthy person. Using friends and family can make this a lot easier. You transfer $50,000 to any family member that wants to help, each transferring these $50,000 to your foreign bank account.
This way you can use the limit multiple times. Of course, the Chinese government does not want this to happen and if they suspect that you are doing this, there is a chance that you will be blacklisted, which means that you can not make transactions to and abroad for 3 years.
Another method commonly used by companies is ‘over-invoicing’. In this way, companies that do business internationally can make arrangements with their supplier or foreign business partner. These agreements deal with which price is placed on the invoice. Of course, it is important to place the invoice price higher than it actually is. A company that does a lot of business and trade internationally will also have less difficulty completing transactions like this. The difference between the invoice price and the actual price is credited to the foreign account of the Chinese company after payment. The $50,000 scheme does not apply as this is a business transaction. Of course, since the beginning of the new regulations, it will be difficult and often a long process until a transaction is approved. However, if the foreign party is willing to work on ‘over-invoicing’, this is an effective method.
The last two options are just as illegal as the foregoing and perhaps also the most risky. Move your money by means of an ‘underground bank’ (shadow bank). In China, for example, money is transferred to an unofficial bank, which then gives you proof of this. With this proof, you can get foreign money in Hong Kong, the amount depends on the amount you paid at the shadow bank. This way you do not spend money on the border but just bring your proof. The risk is that an underground bank can not give you a guarantee and you can not be protected as a consumer. The chance that you are being scammed is therefore quite high.
The last method is simply smuggling of cash. Many companies and richer individuals try to smuggle their hard earned money to Hong Kong or elsewhere by large amounts. Chinese is permitted to bring a maximum of $ 5,000 to cash across the border. However, Hong Kong does not have any rules on a maximum of amount cash. Many Chinese are not happy with this regulation because they are being labelled as a criminal despite it being their own hard earned money.
This was the second part of a 3-serie part paper about the currency regulations in China, in the next part will be about Chinese foreign investments, its growth and the reaction to the new regulations that are put in place by the Chinese government.