There have long been controls on sending money abroad from mainland China. For example, individuals are not allowed to move more than U.S. $50,000 out of mainland China each year, and there have also been limits and an approval process for companies to transfer money out of the country. However, due to more recent economic conditions, including a slowing economy, volatility in mainland China equities markets, and devaluation of China’s currency (officially called the Renminbi (“RMB”), which is denominated in Yuan as the unit of account), increasing numbers of Chinese companies and individuals have sought to move currency and/ or acquire assets overseas.
New Scrutiny & Restrictions
As of November 2016 mainland China-based acquirers had announced U.S. $209 billion in 2016 YTD overseas acquisitions, a 183% increase from the same time period in 2015. In response to growing capital outflows, Chinese regulators have been imposing more scrutiny, and in some cases new restrictions, on capital moving out of the country. In late November 2016, the State Administration of Foreign Exchange (SAFE) issued a directive to banks that their domestic customers must obtain approval before transferring $5 million or more (whether in Dollars or Yuan) out of China. In addition, this rule will also apparently affect RMB deposits in overseas accounts, which previously had escaped most regulation. It has also been reported that Chinese regulators are drafting rules to require prior approval from the central government in Beijing for very large overseas corporate acquisitions. Under these draft rules, prior approval would be mandated for deals exceeding $1 billion involving either real estate or an industry different from a Chinese company’s primary area of business, or any acquisition of whatever type exceeding $10 billion.
New restrictions are also aimed at Chinese individuals transferring or spending funds overseas. UnionPay, which operates under the approval of the People’s Bank of China (China’s central bank), has a virtual monopoly on bank cards and card payments in China. Through new restrictions imposed on UnionPay transactions, the Chinese government is limiting the amount of cash its citizens can withdraw from overseas ATMs. UnionPay bank cards issued in mainland China are limited to a daily withdrawal limit of 10,000 Yuan per card (~$1,573), and beginning in 2016 cumulative annual cash withdrawals overseas have been limited to 100,000 Yuan per card (~$15,737). In response to the hundreds of thousands of mainland Chinese who have traveled to Hong Kong to purchase insurance policies (particularly life insurance with investment attributes to hedge against continued weakening of the RMB, and also to get around the $50,000 limit that Chinese individuals are allowed to send overseas annually) UnionPay recently banned Chinese individuals from buying foreign insurance products, with the exception of accident and medical-related policies. Furthermore, SAFE has directed that UnionPay limit each transaction involving overseas insurance policies to $5,000.
The new scrutiny and restrictions with regard to transfers of funds from mainland China have had a variety of effects on international business and transactions involving Chinese companies and individuals (e.g. real estate transactions, acquisitions by Chinese companies, overseas payments on contracts, and availability of cash withdrawals for Chinese nationals traveling abroad). As the Chinese government has tried to slow the outflow of capital from China, these controls have become even more strict, and that trend is likely to continue for the foreseeable future.
This article was written by attorney John Saunders.