Record Capital Outflows to Canada

Hong Kong families are looking to move to Canada

 

If skeptics are wondering if Hongkongers really are leaving their hometown, then perhaps they can follow the money.

According to electronic fund transfers recorded by Fintrac, Canada's anti-money laundering agency, about CAD$43.6 billion (US$34.8 billion) moved from Hong Kong banks to Canada last year, the highest level on record.

Fintrac, which reports transfers above CAD$10,000, has been recording outflow amounts since 2012. 

Some people are looking to move to Vancouver

One Canadian lender, Equitable Bank, confirmed to Reuters it had seen a surge in deposits from Hong Kong just after the national security law was introduced in late June 2020. 

However, the Hong Kong government claims it has not seen significant capital outflows since the anti-government protests in 2019 which were sparked after the extradition bill was first introduced.  

The record transfers are happening when Hong Kong police froze the bank accounts of several people linked to the pro-democracy protests, triggering concern among some residents about asset safety.

Perhaps the Hong Kong government considers the capital outflows as minimal, as they only represent 1.9 percent of the city's total bank deposits in 2020. But Fintrac's data does not include transfers via cryptocurrencies, between financial institutions, or under CAD$10,000.

Some may move to Canada's biggest city

And then there are lawyers, immigration consultants, and real estate agents fielding lots of enquiries, and say many families are ready to move to Canada along with millions of dollars as soon as the pandemic is under control. 

Canadian visa applications excluding visitors's visas rose 10 percent to 8,121 in 2020, with other highly favoured destinations like the UK and Australia.

There are also about 300,000 Canadian citizens living and working in Hong Kong. Some who immigrated to Canada before 1997 have returned to Hong Kong; however the implementation of the new security law has made people concerned about eroding rights and freedoms and want to move children abroad for better education. 

The UK government is expecting as many as 320,000 Hong Kong residents to migrate there in the next five years.

Harvey has seen five-fold increase in clients

Jean-Francois Harvey is a Canadian lawyer based in Hong Kong who specializes in immigration for high net-worth individuals. He has seen a five-fold increase in clients seeking to move to Canada since mid 2020. His clients have transferred at least CAD$1 million, typically between CAD$5 million to CAD$10 million in the last 12 months.

"There has been an incredible increase in demand especially for Canada in Hong Kong, so much that in the middle of Covid-19, I had to double the team and the size of the office in Hong Kong," said Harvey, worldwide managing partner for Harvey Law Group.

"This is more than a spike. It's a wave."

Mainlanders' Preferred ATMs

Almost all bank account holders in China use UnionPay ATM cards

Macau was told to clamp down on excessive cash withdrawals by mainlanders from ATM machines, and in May apparently installed facial recognition technology for security reasons.

That scared them off in Macau, but this has resulted in more mainlanders going to Hong Kong to withdraw cash using their UnionPay bank cards.

ATM withdrawals in Macau have decreased dramatically

When the media asked the Hong Kong Monetary Authority about how big the impact was on the local banking system, the monetary chiefs refused to confirm or deny there was a surge.

However they do know by how much because the authority has instructed local banks to submit data on cash withdrawals by UnionPay cards through the ATM network -- both the volume and the timing of the withdrawals.

But the HKMA just doesn't want to comment, saying: "We are not in a position to comment on any dialogues of a supervisory nature".

Macau ATMs now use facial recognition technology

The spokesman even added there are no plans to install facial recognition technology in ATMs. Good for us to know.

Currently mainlanders can withdraw up to 100,000 yuan (US$15,000) in cash overseas and remit up to US$50,000 worth of foreign currency offshore annually.

Those who use UnionPay cards (which is practically everyone who has a bank account in China), can withdraw up to 10,000 yuan per day for each card they have.

As a result they open as many bank accounts as they can to be able to withdraw tens of thousands of yuan per day.

Mainlanders now prefer to withdraw cash from Hong Kong

And now Hong Kong is the preferred city to get their gobs of cash out before they hit the casinos. It's good to know the city is still relevant to mainlanders... they may not want to shop here anymore, but at least we're a convenient ATM for them...

China Names and Shames Outrageous Capital Outflows

People and companies have creative ways to get money out of China

The State Administration of Foreign Exchange (SAFE) in China has uncovered some creative ways people and companies are moving money out of the country.

It released a list of 10 top covert cases, naming and shaming five companies, accusing them of forging contracts or invoices to remit a combined US$226 million offshore since 2015.

One of the alleged offenders was Ningbo Big Fortune International Trade, which SAFE claimed colluded with several overseas companies, forged trade contracts, inflated prices to 5-20 times the market price, and moved US$119 million overseas between August and September 2015.

The Chinese government is still trying to stem capital outflow

As a result the company was fined 22.8 million yuan for "seriously disturbing foreign exchange market order".

Sounds intense if the withdrawals disturbed "foreign exchange market order"...

There were five individuals who were also fined for moving up to US$4.35 million through underground banks to their foreign accounts.

In one case, a Guangdong resident enlisted 84 people to use each of their US$50,000 annual foreign exchange purchase quota to remit US$4.35 million to his own accounts in Australia and Hong Kong from December 2015 to January this year. He was fined 1 million yuan, according to SAFE.

But how else is someone supposed to move money overseas if they want to buy property or a company when they have the money? It's not like he stole it, though getting 84 people to help out is excessive.

Beijing continues to be concerned about capital outflows and regulators are discouraging companies from too much outbound investment and tightening checks on people exchanging foreign currency.

The extensive impact has led to the devaluation of the yuan

From July 1, the government will also tighten rules for banks to report cross-border customer transactions to curb money laundering and funding terrorism. That's a good cover to try to stem money from flowing out -- but will it?

Li Youhuan from the Guangdong Academy of Social Sciences, said capital outflow was undeterred by stricter scrutiny "given the robust business I've seen by underground banks".

"Measures to hold back company transactions definitely cannot work," he said. "Such demand cannot be eliminated as long as China opens its door to trade and exchange with other countries."

Finance professor Zhao Xijun at Remin University seems to think SAFE is sending a message of punishment, that financial institutions will be held responsible if they collude.

However, Andrew Collier of Oriental Capital Research says it's impossible to stop capital outflow altogether because companies need to conduct external transactions.

"I expect China will need to depreciate the currency in 2018 to reduce the pressure on capital flows," he said.

Will that be when US President Donald Trump will brand China as a "currency manipulator"? China seems to have too many domestic financial problems of its own to worry about what The Donald says...

Number of the Day: US$3 Billion

The Murray Road car park (right) sold today for US$3 billion

Land is getting even more expensive in Hong Kong, with today's sale of the Murray Road car park for a staggering US$3 billion (HK$23.28 billion). That works out to HK$50,064 per square foot.

Whoa.

The government building was sold to Henderson Land

The record up to now was a grade-A office space at 9 Queens Road Central sold in April for HK$145.82 million, or HK$39,800 per square foot.

The buyer of Murray Road, Henderson Land Development, run by Lee Shau-kee and his family, beat out eight rival bids, in particular mainland developers who are now strangled from getting money out of China these days.

Henderson Land plans to develop the multi-storey car park into -- what else -- a commercial building the company describes as "a landmark building" that will be completed in 2022.

Analysts are already speculating multinational and mainland firms will occupy that office space.

There's a convenient walkway from Central to Admiralty

So while car owners already have one less place to park their cars in Central (it closed a few weeks ago), pedestrians will lose a convenient thoroughfare, as it provided an easy short cut to Admiralty and the edge of Central.

By the way -- now that the government will have another US$3 billion in its coffers, how about using those proceeds towards building social housing? Seems like the most decent thing the authorities could do...

Number of the Day: HK$10 Billion

Macau seems to be another place for mainlanders to move their money

That is the amount of money that is withdrawn from ATMs in Macau per month.

Per month!

And the banks have received instructions to make sure these automatic teller machines never run out of bank notes too.

The 1,300 machines around the former Portuguese enclave are monitored 24 hours a day, and if they start getting low, a team is ready to refill them with more cash.

Looks like Macanese ATMs are another avenue for capital outflows.

What's also interesting is that since December last year, the maximum amount of withdrawals dropped from 10,000 patacas to 5,000 patacas, but that doesn't seem to have prevented mainlanders from getting money out.

Facial recognition technology will soon be installed at ATMs

There are reports that mainland racketeers use hundreds of bank cards to withdraw cash from Macau ATMs as part of a multi-million-dollar foreign exchange scheme.

In one case last January, the court heard evidence that one couple used 402 cash card accounts to make withdrawals from Macau ATMs as part of a 105 million yuan illegal foreign exchange racket.

A similar case in the same court last October had evidence showing 222 cash card accounts were used by a gang to make ATM withdrawals in the casino hub as part of a 139 million yuan foreign exchange scam.

Another interesting statistic is that the number of ATMs in Macau has quadrupled since the gaming industry was liberalized in 2001.

Either local Macanese like playing with ATM machines, or they are specifically geared towards mainlanders.

But maybe it'll be game over soon, as facial recognition technology will be used to scan millions of bank card users at ATMs in Macau.

The Macau government said all holders of mainland-issued China UnionPay bank cards "will be require to scan their mainland identity card and undergo a facial recognition check".

Officials did not have a time frame when the new scheme would be implemented, but one can imagine even more cash is being withdrawn now as we write this.

The vast majority of visitors to Macau are from mainland China at 30 million last year, 20 million of which were from Guangdong province.

The Chinese government is desperately trying to stop capital outflows any way it can, and yet people still find a way to get their money out. It is normal for people on the mainland to have a number of bank accounts, so facial recognition may not be all that helpful.

This cat and mouse game will continue, and Beijing might be the loser in the end.