Financial restrictions hurt China´s outbound investments - Victor Shih

Victor Shih

Fast declining foreign reserves have pushed China´s financial authorities into severely restricting the outflow of capital. Outbound investment, like the Vancouver real estate industry, might be under pressure, says financial analyst Victor Shih in the Vancouver Sun.

The Vancouver Sun:

The new edict demands a written pledge that yuan converted into U.S. dollars will not be used to buy property overseas. It also creates a government black list and harsher penalties for violators. 

The new rules came into effect on Jan. 1, causing uncertainty in global real estate markets from London to San Francisco and, of course, Vancouver. 

Some have been doing back-of-the-napkin calculations to guess at what a sharper chokehold on Chinese funds could mean for a market already reeling from the additional property tax for foreign buyers. 

Others wonder how this latest move might compare with past attempts to cool the outflow of Chinese money. 

“I think this round of (foreign-exchange) crackdown is much more strictly enforced and (will be) longer lasting,” said Victor Shih, associate professor at the University of California, San Diego, who is researching the impact of elite networks in China. “Prior to the end of last year, even low-level private bank clients for major Chinese and transnational banks can easily transfer money from mainland accounts to offshore (ones.)   

Chinese authorities have now stopped this, he said. 

“In addition, when exchanging any amount of money in China, one now needs to specify the beneficiaries of the exchanged foreign currency, whether it be an overseas university, a tour group or a hotel,” Shih said. 

China’s foreign-exchange reserve has been rapidly emptying since 2015, he added. 

“Because money supply in China today is over US$20 trillion, even if a fraction of the money of the money supply were to get out, it can quickly wipe out China’s reserves. Thus, (Beijing) has to impose increasingly draconian restrictions on capital flows.”

More in the Vancouver Sun.

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more experts on China´s outbound investments? Do check out this list.