China Herald: New strains on spending money abroad

Officially China bans its citizens from taking their money abroad, but its financial borders have been notorious leaky. That might be changing, and cause huge ripples in the global financial world, writes WSJ´s wealth editor Wei Gu in Nasdaq.com.

Wei Gu:

The government has a lot of leaks to plug. These include longstanding strategies such as businesses over-invoicing their purchases or individuals using informal money-transfer networks. Other methods are more controversial, such as a Bank of China program that allowed clients to move large sums abroad. In the gambling center of Macau, the rich have used junkets, which lend them money in the former Portuguese territory and collect the debts back home. Less wealthy gamblers use their UnionPay cards, China's only domestic bank card, to make fake purchases, pocketing the cash.

China's gambling capital is among the first to feel the chill. Macau's casino revenue fell for a second straight month in July, dropping 3.6% from a year earlier...

The biggest global impact of the crackdown will be felt in real estate. Chinese buyers have buoyed property markets from Sydney to Vancouver to London. Given the high prices of the homes involved, the buyers are certainly moving more than $50,000 out of the country.

One route favored by real-estate investors that has been shut down is a money-transfer service run by Bank of China Ltd. called You Hui Tong. Bank of China has said that it has received some regulatory approval for the service. China is also working on a deal with U.S. regulators that would force U.S. banks to disclose the assets of Chinese depositors.

The squeeze is already hitting Chinese developers working overseas, such as Country Garden Holdings Co. The developer has marketed some of the 10,000 units in a new waterfront land development in Danga Bay, Malaysia, to mainland buyers.

Country Garden'sMalaysia project, its first international foray, was lauded as a success in its 2013 annual report, with contract sales of 7 billion yuan ($1.13 billion). But this year, it has suffered from cancellations, mainly from Chinese buyers, according to people close to the matter. Some have cited difficulty in obtaining mortgages or moving funds offshore as one of the reasons for canceling.

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