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Although the Chinese government has been actively blocking the flow of funds out of China's official channels, but more funds are flowing through hidden means, because investors want to avoid the slowdown of the Chinese economy and weakening of the renminbi.
China's official foreign exchange reserves fell by more than $ 50 million last year and are still falling, down nearly $ 46 billion in October. The International Finance Association (IIF) estimates that capital outflow doubled in the third quarter to more than $ 200 billion.
In order to prevent capital outflows, China has frozen or restricted mechanisms to allow individuals and institutions to invest abroad, namely Qualified Domestic Limited Partners (QDLPs) and Qualified Domestic Institutional Investors (QDIIs). Counsel notes that the rate of approval of large-scale ODI transactions has slowed considerably.
Yin Ge, adviser and head of financial services at Shanghai's Gao Hua Shen Law Firm, said new QDII approvals were largely halted. ODI investments involving large amounts of foreign currency remittances were scrutinized and QDLP plans were slowing down.
Industry executives said the next few months is unlikely to relax, so investors are thinking about other ways to cash outside, for example, through Hong Kong's form of false trade.
"The growth in volume through such channels means that even if financial institutions find more suspicious transactions, they are just the tip of the iceberg of trade invoices," said Alicia Garcia Herrero, chief economist at Natixis.
** Avoidance provisions **
Official efforts to limit outflows have been substantial.
Two executives of the two fund companies in Hong Kong said the QDLP project, which was halted in March this year, could not be restarted until 2017, according to government officials.
For more than $ 50 million cross-border transactions, government officials require investors to go to the State Administration of Foreign Exchange in person, or ask them to installment.
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