Massive fund outflow challenges China’s forex management

Massive fund outflow challenges China’s forex management

Staff Reporter


The influx of hot money and outflow of funds via various channels in China underscores the increasing challenge to the country’s foreign exchange management system, reports the Beijing-based China Economic Weekly. According to Jones Lang LaSalle, a multinational real estate service firm, overseas commercial property investments by Chinese investors have jumped by 33% last year to US$4 billion and may reach US$5 billion by the end of this year. The investments coincide with an increase of Chinese nationals choosing to emigrate, a group which totaled more than 150,000 people in 2011. The huge amount of funds flowing out of the nation via various channels are reportedly due to the official restriction on outward forex remittance, which is capped at US$50,000 per person a year. The People’s Bank of China, aware of the futility of efforts to stem the outflow of money, recently summoned representatives from a number of foreign banks, including HSBC, Citibank, Standard Chartered, and DBS, to discuss the establishment of a system governing offshore investments by Chinese nationals, the China Economic Weekly said. The government also discussed the issue during a meeting of the National People’s Congress Standing Committee on May 6, and will now aim to monitor cross-border fund movements, which currently evades government inspection. Liu Jinchuan, a financial expert, said that underground channels for fund outflows include underground financiers, assets transferred via trade and investment, money laundering via offshore casinos and offshore bank cards. There are many brokers for overseas investments in Shenzhen, on the border with Hong Kong, with many of them operating as local underground financiers, the paper said. Adi (pseudonym), a money broker, said that the State Foreign Exchange Administration, while capable of controlling the cross-border movement of large amounts of funds, is powerless to regulate the movement of smaller amounts of money, equivalent to several millions or tens of millions of renminbi. Adi said he can remit funds out of the country within half an hour of receiving notice from his clients, for which he charges a fee of 0.8%-1.5%, adding that the transfer of large-scale funds can be carried out in installments. Chinese investors have also been funneling funds abroad via foreign trade, such as bloating import prices or underreporting export prices, especially in the case of hi-tech products. The underground outflow of funds via foreign-trade channels explains in part the increase of Hong Kong’s export value, which shot up by 74.2% year-on-year to US$105.6 billion in the first quarter of this year, much higher than its import figures.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: