China’s official media has accused the Bank of China of abetting money laundering by members of the country’s affluent elite seeking to increase their property holdings abroad.
According to China Central Television (CCTV) the Bank of China – one of China’s big four banks as well as the world’s fifth largest bank in terms of market capitalisation, has been running a program out its branches in the south of the country over the past several years to convert the Renminbi into overseas currencies, in order to help investors dodge Beijing’s strict capital controls.
The trial program was introduced in 2011 for the specific purpose of facilitating overseas property purchases and emigration, and was offered by banks in Guangdong province, which lies just adjacent to Hong Kong.
CCTV alleges that the program was used by cash-flush Chinese investors to circumvent government capital controls, which cap the amount of renminbi that individuals are allowed to convert into other currencies at USD$50,000 each year, as well as prohibits the direct transfer of currency abroad.
These strict currency controls stand in marked contrast to the vast amount that of property that Chinese nationals have managed to acquire in developed economies over the past several years. According to figures from the National Association of Realtors in its annual report on foreign home purchases, investors from the greater China region acquired USD$22 billion in homes in the US in the year through March, making them the biggest source of overseas buyers.
Chinese have also become the biggest buyers in the Australian markets for both commercial and residential property. According to the Foreign Investment Review Board, Chinese investment in Australian property leaped by 42 to percent to $5.9 billion in the year to June 2013.
Analysts point to the Bank of China’s program as a key means of enabling mainland investors to shift their funds offshore for this copious volume of property purchases. Estimates by domestic media peg the volume of money transferred abroad via the trial program at as high as USD$3.4 billion.
In response to the CCTV allegations the Bank of China has said that the program did not comprise money laundering, as they were reported to regulators and conducted with their approval.
Currency experts said the program was a part of advance efforts by Beijing to expedite the internationalisation of the Renminbi, and an encouraging sign of the country’s efforts to open its capital account.