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08-03-2014, 11:26 PM
China loosens yuan controls for $5m Aussie visas
Angus Grigg and Lisa Murray AFR correspondents
865 words
12 Feb 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Shanghai China is using an Australian investment scheme to trial the relaxation of its rigid capital controls, by allowing rich business people to legally transfer more than $5 million offshore.
The surprising move, which has never been made public, began in July 2012 to support "immigration-related finance" and has been used extensively for Australia's Significant Investor Visa.
The Australian Financial Review has confirmed that a single Bank of China branch in the southern city of Guangzhou has opened up this new "channel". A source at the bank, who asked not to be named, described it as a "pilot program" which had been approved by the People's Bank of China – the central bank.
Another source, with direct knowledge of Canberra's visa program, said "nearly all" Chinese applicants moved their money offshore this way, suggesting more than $400 million has already flowed to Australia via this channel.
Chinese nationals are usually limited to transferring just $US50,000 annually out of the country.
The Significant Investor Visa has proved popular in China, but one obstacle has been how applicants could legally get money out of the country. Another issue with the scheme is proving that the prospective Australian residents obtained the funds legally in the first place.
The Australian scheme was given a boost when Canada stopped accepting new investment visa applications in 2012. Its conservative government is now set to scrap the scheme altogether, arguing it has provided insufficient economic benefits.
The decade-old Canadian scheme only required prospective immigrants to invest $C800,000 for five years in return for a passport.
Under Canberra's visa scheme, recipients must invest $5 million into a qualifying Australian fund for a period of four years. In return they and their immediate family receive an Australian passport, without having to meet the usual language or residency requirements.
By the end of last year 88 investment visas had been approved. Victoria was the most popular state ,with 49 approvals, followed by NSW with 26.
The source familiar with the visa program said many applicants were transferring more than the minimum $5 million to Australia.
"I personally know one person who is looking to move $50 million, but the average is somewhere between $5 million and $10 million," he said.
"This is an unspoken, official channel. I think they are quietly testing what effect loosening capital outflow regulations will have on the economy."
The source at the Bank of China said the "channel" was suspended for six weeks in the middle of last year, before re-opening. He said it was suspended again on December 26 for an end-of-year audit.
The chief China economist at ANZ, Liu Li-Gang, said the pilot scheme appeared to be allowing individuals to skirt capital controls in the same way as trading companies have been able to for some years.
"The fact that authorities are tolerating such a transaction suggests they want to know how significant these outflows could be in the future if the capital account was opened up," he said.
A lawyer familiar with Bank of China's new channel said it operated in two ways. The first was to allow an offshore branch to extend a loan to a client, backed by onshore assets. Such a loan would be supported by a line of credit from the onshore branch.
The second way was to allow an individual to send yuan funds out of the country and then convert them into foreign exchange in the offshore market. Such a transfer is now regulated by the PBOC rather than being subject to foreign exchange controls.
The relaxation of these capital controls is being viewed as part of the broader opening up of the financial sector between Australia and China.
This began in March 2012, when the Reserve Bank of Australia and its counterpart, the People's Bank of China, agreed to a $30 billion currency swap arrangement.
Then in April last year, Australia became just the third country to be granted direct trading rights with the Chinese yuan, after the United States and Japan. Allowing this new "channel" is being seen as a small step in China's long-term goal of yuan internationalisation and the gradual opening of its capital account.
Guangzhou, with its proximity to Hong Kong, has been a traditional testing ground for major reforms in China.
The investment visa scheme was launched in November 2012 by the previous Labor government in an attempt to lure private Chinese investment to Australia. Prior to this, investment was dominated by large Chinese state owned enterprises, mainly in the resources sector.
The Department of Immigration and Border Protection said 943 expressions of interests had been received by December 31 last year. This had resulted in 601 applications being lodged of which 90 per cent were from Chinese nationals.
The Department said 88 visas had been granted at the end of last year, equating to a minimum of $440 million in investment. If all the remaining applicants are approved then Australia can expect to see a further $2.6 billion flow into the country.
Fairfax Media Management Pty Limited
Document AFNR000020140211ea2c0004g
Angus Grigg and Lisa Murray AFR correspondents
865 words
12 Feb 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Shanghai China is using an Australian investment scheme to trial the relaxation of its rigid capital controls, by allowing rich business people to legally transfer more than $5 million offshore.
The surprising move, which has never been made public, began in July 2012 to support "immigration-related finance" and has been used extensively for Australia's Significant Investor Visa.
The Australian Financial Review has confirmed that a single Bank of China branch in the southern city of Guangzhou has opened up this new "channel". A source at the bank, who asked not to be named, described it as a "pilot program" which had been approved by the People's Bank of China – the central bank.
Another source, with direct knowledge of Canberra's visa program, said "nearly all" Chinese applicants moved their money offshore this way, suggesting more than $400 million has already flowed to Australia via this channel.
Chinese nationals are usually limited to transferring just $US50,000 annually out of the country.
The Significant Investor Visa has proved popular in China, but one obstacle has been how applicants could legally get money out of the country. Another issue with the scheme is proving that the prospective Australian residents obtained the funds legally in the first place.
The Australian scheme was given a boost when Canada stopped accepting new investment visa applications in 2012. Its conservative government is now set to scrap the scheme altogether, arguing it has provided insufficient economic benefits.
The decade-old Canadian scheme only required prospective immigrants to invest $C800,000 for five years in return for a passport.
Under Canberra's visa scheme, recipients must invest $5 million into a qualifying Australian fund for a period of four years. In return they and their immediate family receive an Australian passport, without having to meet the usual language or residency requirements.
By the end of last year 88 investment visas had been approved. Victoria was the most popular state ,with 49 approvals, followed by NSW with 26.
The source familiar with the visa program said many applicants were transferring more than the minimum $5 million to Australia.
"I personally know one person who is looking to move $50 million, but the average is somewhere between $5 million and $10 million," he said.
"This is an unspoken, official channel. I think they are quietly testing what effect loosening capital outflow regulations will have on the economy."
The source at the Bank of China said the "channel" was suspended for six weeks in the middle of last year, before re-opening. He said it was suspended again on December 26 for an end-of-year audit.
The chief China economist at ANZ, Liu Li-Gang, said the pilot scheme appeared to be allowing individuals to skirt capital controls in the same way as trading companies have been able to for some years.
"The fact that authorities are tolerating such a transaction suggests they want to know how significant these outflows could be in the future if the capital account was opened up," he said.
A lawyer familiar with Bank of China's new channel said it operated in two ways. The first was to allow an offshore branch to extend a loan to a client, backed by onshore assets. Such a loan would be supported by a line of credit from the onshore branch.
The second way was to allow an individual to send yuan funds out of the country and then convert them into foreign exchange in the offshore market. Such a transfer is now regulated by the PBOC rather than being subject to foreign exchange controls.
The relaxation of these capital controls is being viewed as part of the broader opening up of the financial sector between Australia and China.
This began in March 2012, when the Reserve Bank of Australia and its counterpart, the People's Bank of China, agreed to a $30 billion currency swap arrangement.
Then in April last year, Australia became just the third country to be granted direct trading rights with the Chinese yuan, after the United States and Japan. Allowing this new "channel" is being seen as a small step in China's long-term goal of yuan internationalisation and the gradual opening of its capital account.
Guangzhou, with its proximity to Hong Kong, has been a traditional testing ground for major reforms in China.
The investment visa scheme was launched in November 2012 by the previous Labor government in an attempt to lure private Chinese investment to Australia. Prior to this, investment was dominated by large Chinese state owned enterprises, mainly in the resources sector.
The Department of Immigration and Border Protection said 943 expressions of interests had been received by December 31 last year. This had resulted in 601 applications being lodged of which 90 per cent were from Chinese nationals.
The Department said 88 visas had been granted at the end of last year, equating to a minimum of $440 million in investment. If all the remaining applicants are approved then Australia can expect to see a further $2.6 billion flow into the country.
Fairfax Media Management Pty Limited
Document AFNR000020140211ea2c0004g