3/13/2021 From Crypto to Offshore Accounts: Tactics Used to Get Cash Out of China - Bloomberg

Wealth

The Tactics People Are Using to Get Their

Money Out of China
Finding ways around the rules is something of a national pastime.

Bloomberg News
March 10, 2021, 10:41 PM EST

There’s barely a global asset that isn’t influenced by Chinese money, from the latest hot Hong
Kong public offering to luxury apartments in Vancouver.

Technically though, most of these purchases are the result of loopholes exploited by Chinese
citizens — or in some cases outright law-breaking. China’s capital control rules explicitly forbid
citizens from using any of their $50,000 annual foreign exchange quota to directly purchase
offshore property or securities, although indirect investment via some channels is permitted.
There’s an official program for trading Hong Kong stocks, for instance, which crucially doesn’t
include IPOs.

Depending on the severity of the breach and the amount of money involved, potential sanctions
range from being denied future quotas to criminal conviction.

Despite the risks, finding a way around the regulations is something of a national pastime. For
ordinary middle-class families exploiting loopholes is all about making money, while for the rich
https://www.bloomberg.com/news/articles/2021-03-11/from-crypto-to-offshore-accounts-tactics-used-to-get-cash-out-of-china?utm_campaign=instagra… 1/5
3/13/2021 From Crypto to Offshore Accounts: Tactics Used to Get Cash Out of China - Bloomberg

— spooked by China’s crackdown on Alibaba Group Holding Ltd. — it’s about protecting

fortunes.  

As the Chinese authorities periodically crack down on common techniques, exactly how funds

are moved changes over time. Right now, it’s all about peer-to-peer and cryptocurrencies rather
than cash in a suitcase. 

“It’s got a lot harder than before, but people are still finding a way,” said Peter Cai, project
director of Australia-China relations at the Lowy Institute. “The risks are manageable for most
people because the rules haven’t been fully enforced by the Chinese authorities.”

Details are based on interviews with people who moved money offshore and those familiar with
the practice, who declined to be quoted publicly or by full name due to the sensitivity of the
topic.  

1. Offshore Basics

A prerequisite to spending money abroad is an offshore bank account. This part is legal, if
sometimes tricky. 

Chinese banks set a high bar for opening a Hong Kong bank account onshore: China Minsheng
Banking Corp., for example, asks its clients to deposit 300,000 yuan ($46,476) for three months.
And Chinese banks tend to be stricter about checking what quota money is used for. 

Those who spend significant time overseas — for example attending university — can qualify for
accounts while out of the country. For those without that connection, players like Standard
International Bank offer U.S. accounts opened online with no asset requirements. The
drawback? The transaction costs for shifting money out are higher than using a Hong Kong bank
account, said Zhu Yunpeng, head of securities and futures brokerage department at TF
International Securities Group Ltd.

Once you have an offshore account, you can then wire in money up to your quota limit.

To buy into the latest hot Hong Kong public offering, it’s then just a matter of moving money into
a brokerage account. Each individual step is legal, but taken together as a chain individuals are
breaching their pledge on what they intend to use their forex for. Though that’s not putting

https://www.bloomberg.com/news/articles/2021-03-11/from-crypto-to-offshore-accounts-tactics-used-to-get-cash-out-of-china?utm_campaign=instagra… 2/5
3/13/2021 From Crypto to Offshore Accounts: Tactics Used to Get Cash Out of China - Bloomberg

people off — at one brokerage, mainland customers have driven a 10-fold surge in new
account openings this year.

“Most of the people moving money outside the borders are to pursue higher investment
returns,” said Hao Hong, chief strategist of Bocom International, highlighting in particular the
rush to get in on overseas IPOs of superstar technolo y firms.

The risks:  Chinese regulators have so far turned a blind eye to such practices and the forex
regulator is mulling whether residents should be allowed to buy overseas stocks directly. The
State Administration of Foreign Exchange didn’t immediately respond to a faxed request for
comment. Still, if officials decide to crack down, violators could be added to the currency
regulator’s watch list, denied foreign exchange quota for three years and subject to anti-money-
laundering investigations.

2. Peer to Peer

If you want to avoid drawing attention to yourself with cross-border transfers — or move more
than the $50,000 cap — another popular option is a “two-way exchange.” 

First, find someone who wants to get investment gains back into China. Agree terms like who makes
the first move and the exchange rate. Then transfer yuan to your counterpart’s Chinese bank account,
while they put foreign currency in your offshore account.  Illustration: Cynthia Hoffman/Bloomberg

Where there’s demand, there’s a business. Some Hong Kong-based insurance agents have turned
themselves into underground money exchangers for those who need the local dollar, typically
charging a fee, according to two insurance agents who declined to be named.

https://www.bloomberg.com/news/articles/2021-03-11/from-crypto-to-offshore-accounts-tactics-used-to-get-cash-out-of-china?utm_campaign=instagra… 3/5
3/13/2021 From Crypto to Offshore Accounts: Tactics Used to Get Cash Out of China - Bloomberg

The risks: Apart from the risk of someone running off with your money, the biggest threat is a
potential criminal penalty. Fraudulent buying and selling of foreign exchange or forex trading in
a disguised form could lead to a criminal conviction, according to a document published by the
Supreme People’s Court.  It doesn’t give a detailed description of exactly what types of
transaction fall into this category. 

3. Virtual Currencies

The nature of cryptocurrencies, which are based on decentralized blockchain technolo y, makes
them hard to trace and thus a perfect conduit for grey-market money. The trouble is the
authorities know that too.

“There are no legal channels to trade Bitcoin in China,” said Da Hongfei, founder of blockchain
solutions provider Onchain. “Some rely on peer-to-peer transaction, but there’s hardly an easy
way.”

The first step is to use a virtual private network to get outside the Chinese-controlled web and set
up a crypto trading account.

To get money into the account, most people use yuan to buy USDT, a digital coin from Tether.
USDT tokens are often bought from existing users, and are accepted by many crypto platforms
as payment because they are backed by the same amount of U.S. dollars. 

Then you can use your Tether USDT tokens to buy a liquid and well-accepted digital currency
like Bitcoin and pay directly for offshore purchases. Or sell the tokens and ask the buyer to wire
the proceeds to your offshore bank account.

The risks: There are no officially sanctioned crypto exchanges in China. Additionally, as

cryptocurrencies are still a favored vehicle for illicit purposes like money laundering any funds
suspected of being involved in such activities could trigger a bank account freeze overseas as
well. 

4. M&A Games

Wealthy individuals or companies also have the option of inflating purchase prices.

https://www.bloomberg.com/news/articles/2021-03-11/from-crypto-to-offshore-accounts-tactics-used-to-get-cash-out-of-china?utm_campaign=instagra… 4/5
3/13/2021 From Crypto to Offshore Accounts: Tactics Used to Get Cash Out of China - Bloomberg

Those who want to move money offshore via this approach can arrange to overpay for an
overseas asset. The seller then pays the difference between the transaction price and the market
price to a party connected to the buyer as a consultancy fee. That “fee” can then be deposited in
the buyer’s offshore account. 

Companies with intangible assets like intellectual property, which offer a huge room for
valuation markup, make perfect acquisition targets for that purpose, said Shen Meng, a director
at boutique investment bank Chanson & Co in Beijing.

After waiting a while, the assets can be resold to another local partner below the market price,
with the seller claiming the business has failed due to bad decisions or a changing business
environment.

While the remaining value will be pulled back to China, the difference between the market price and the
resale price is thus retained offshore and can be retrieved from the local partner under the pre-
arranged deal, said Shen. Illustration: Cynthia Hoffman/Bloomberg

Risks: China has stepped up scrutiny of overseas acquisitions due to concerns about systemic

risks. While the move is primarily aimed at the biggest players like once-sprawling conglomerate
HNA Group Co. — which spent more than $40 billion on acquisitions across six continents
between 2016 and 2020, although there’s no evidence it inflated purchase prices — everyone can
expect more questions.

Terms of Service Trademarks Privacy Policy

©2021 Bloomberg L.P. All Rights Reserved
Careers Made in NYC Advertise Ad Choices Contact Us Help

https://www.bloomberg.com/news/articles/2021-03-11/from-crypto-to-offshore-accounts-tactics-used-to-get-cash-out-of-china?utm_campaign=instagra… 5/5