China's wealthiest are taking their capital out of the country over fear of yuan devaluation
At some point in May, the US dollar/yuan rate rose in Hong Kong to 7.19, and speculators were confident in further weakening of the Chinese currency.
Recently, signs became to emerge of China's wealthiest attempts to take money abroad. The reason for this is the escalation of the trade conflict between Washington and Beijing, which raises fears of yuan devaluation.
The traditional way to withdraw money from mainland China by opening a USD account in Hong Kong is popular. But as the Coronavirus pandemic in the region is coming to an end, China's wealthiest are increasingly interested in overseas property and insurance.
A recent webinar on investing in Ireland was attended by about 100 Chinese residents. They listened attentively to the realtor, who constantly said that property in Ireland would not be affected by the conflict between Washington and Beijing. At the end of the event, the presenter showed the house for US$1.5 million and said that this property can bring about 3% annually.
This webinar was just one of a series of similar events held in May by Juwai, a Chinese company specialising in emigration, real estate and overseas study. In addition to property in Ireland, the organisers of the webinar advertised property in Malaysia and Japan. According to other similar companies, other places such as Malta and Cyprus are also gaining popularity.
China has strict currency legislation that allows one person to exchange no more than US$50,000 per year. Therefore, when a Chinese resident wants to make a major investment abroad, he uses all members of his family to exchange currency or withdraws money in cash while traveling.
However, the entry ban that many countries have introduced due to the pandemic imposes severe restrictions on capital export from China while traveling. The French bank Natixis has estimated that capital outflow from China has dried up to only US$1 billion in the first quarter, but it is likely to increase as the borders open.
The wealthy Chinese are increasingly afraid that grey loophole for taking money abroad may soon be closed with the enactment of the Hong Kong National Security Act.
A number of private banking bankers told the Bloomberg agency that their clients began to make more active contingency plans after Beijing announced its intention to pass the law. The new law threatens Hong Kong's legal independence and may also induce the U.S. to impose sanctions against China and provoke a new wave of protests in the former British colony, which dealt a powerful blow to its economy even before the coronavirus pandemic.
“What we’re basically seeing is a bit like a slow-moving train wreck,” said Richard Harris, chief executive of Port Shelter Investment Management in Hong Kong. “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.”
On June 1, Goldman Sachs announced that it expects the US dollar/yuan exchange rate to rise to 7.25 in the next three months. And a month earlier, Rabobank warned that yuan rate could collapse by 15-50% and drag other currencies of developing countries.