Less and less money is leaving China by the day. June numbers from the People’s Bank of China (PBoC) show that foreign exchange reserves rose once again. The number was just a slight increase, but the PBoC announced new anti-money laundering measures that will likely mean even less money will be leaving the country in the near future. This could mean even more trouble for real estate markets like Vancouver, Auckland, and Sydney that have become dependent on Mainland Chinese buyers.
Foreign Exchange Reserves Rise By US$3 Billion
SAFE numbers show that capital outflows rose once again. The month ended with US$3.056 trillion in reserves, a US$3 billion increase from the month before. This is the fifth month in a row that the reserves increased, but is still a 4.65% decline from the year before. While the bump up is moderate, expect this to change drastically over the next few months.
Source: SAFE, PBoC.
Money Laundering In China
China has a self-admitted money laundering problem, but most people don’t understand what that means. The Chinese government alleges trillions of yuan were stolen from the government, and moved offshore by corrupt politicians. Most of this money ended up in good ole’ fashion traditional money laundering areas, like Southeast Asia, and South America. I’m kind of cheering on a crackdown of corrupt politicians – as long as it’s properly proven. However, a large portion of money that exits the country wouldn’t be considered money laundering by any Canadian, American, or…heck, most of the world.
The “money launderers” you’re most likely to run into are regular families, with legitimately earned income. Due to China’s capital controls, you can’t exchange yuan for more than US$50,000. Since January, you can only do it for “approved” reasons. That number is pretty high for everyday purposes, but if you wanted to put a downpayment on a house – you’d have a tough time. Any circumvention of these rules is considered “money laundering” in China. It’s not quite as nefarious as the majority of self-promoting “experts” make it sound, but it’s controversial nonetheless.
China Unveils An Anti-Money Laundering Army…In Passing
China doesn’t care, they’re ramping up enforcement. In addition to the new rules rolled out this year, Jin Luo, Director General of the Anti-Money Laundering Bureau for the PBoC made a speech yesterday announcing new measures to tackle the issue. In her speech she acknowledged that China “began late” when dealing with anti-money laundering, but will have “strong late-mover advantages.” She added that China’s new rules will have a “higher standard with stricter requirements than developed countries.”
Luo mentions in passing that the PBoC has trained over 400,000 employees to help with the crackdown. You know, a totally normal number, so she’s not going to emphasize it. These employees are everyone from front-line employees, to bank managers, to bank executives. She aims to reduce the “risk of abnormal cross-border capital flows,” as China has been “suffering a double loss of economic interest and national reputation.” Who knew China was so touchy about its reputation?
Impact On Real Estate
This fits in with analysis from China’s largest overseas property firm Juwai. Earlier this week analysts from the firm explained that stricter capital controls would contribute to a slowdown in sales to Mainland Chinese buyers. They estimated the year over year decline would be around 20%. This number took into account previously announced capital controls, but couldn’t have accounted for the measures announced afterwards. The new anti-money laundering framework will impede capital flows further, even legitimate flows.
China tends to move with speed and precision most other countries won’t even understand. In less than 5 years, the country produced so much wealth that Mainland Chinese became the world’s largest international real estate buyers. Failing markets padded economic growth, and adjusted their whole economies to accommodate the inflow of capital from these investors. In less than 5 months, the PBoC may be getting ready to take it away.
Like this post? Like us on Facebook to get the next one in your feed.