Chinese currency allegations spark investment fear
Photo: DCMaster
China's current rules cap the maximum amount that can be converted into another currency at $50,000 a year. Despite that, China has risen to become one of those most dominant forces in overseas real estate.
Increasingly active Chinese buyers have entered Australia's proeprty market, fuelling international investment; a trend that some have blamed for rising house prices. A similar trend has occurred in New Zealand too, while in the US, Chinese buyers spent the most on real estate in 2013.
Investors from the country splashed $22 billion on American property last year with an average sale cost of $590,826, according to the National Association of Realtors.
The move of Chinese capital into other countries' housing markets, though, appeared to be in doubt when the state TV broadcaster revealed the Bank of China's You Hui Tong (or "superior foreign-exchange channel") scheme, alleging that money laundering had been taking place.
1st Century Business Herald estimated that the lender has moved about 20 billion yuan ($3.2 billion) abroad through You Hui Tong. China's State Council bank, Citic, is also reported to have been offering the service by Zero Hedge.
The allegations arrived as the country attempts to crack down on financial corruption and boost its international economic profile.
The Bank of China, though, has denied the allegations and said that media reports of the experimental scheme are not accurate.
"The trial program was introduced in 2011 for overseas property purchases and emigration and doesn’t constitute money laundering," it said in a statement earlier this month.
The lender assured that the transfers were both reported to regulators and allowed by them.
Some commentators have since said that a crackdown on the scheme could deliver a blow to other property markets, such as Australia, where Chinese money has become a key driving force behind growth.
Zero Hedge even spoke about the possibility of China being "locked out of any future US housing purchases for a long, long time".
Nonetheless, fears may be unfounded, according to experts.
“There’s a silver lining in this incident as it may force the regulators to address the issue in a more open and transparent way,” Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd., told the Financial Post. “This is an irreversible trend.”
Andrew Taylor, Co-Chief Executive Officer of Juwai.com, also told OPP Connect that China's investment in real estate is only likely to grow: “China is producing so much wealth, and it is integrating with the global economy at such a pace, that we believe the trend in international property investment can only increase over the coming one to five years.
“While China’s pace of overseas investment is strong, its total stock of overseas assets is still low by international standards. Just to get to the level of other major economies, in terms of stock of overseas real estate owned by its citizens, China still has many years of growth yet to play out.”
However it happens, wherever the money comes from and whoever permits it, one thing is clear: Chinese buyers are investing big in overseas real estate. And now they have started, if the leading Chinese-language property site is right, they will only invest bigger.