The Chinese government’s extensive crackdown on money exiting the country could hit the Australian property market hard, as private Chinese investors could experience problems settling on deals, KPMG’s China experts recently warned.
“There might be some problems in the residential real estate property markets in Australia and other centres where Chinese have been buying property,” Simon Gleave, KPMG’s head of financial services in China, told The Australian.
Gleave said KPMG was still monitoring developments to assess the full implications of tighter controls on capital outflows, which were announced late last year by various Chinese government departments.
The measures, which involve the stricter monitoring of existing rules and a crackdown on the nature of overseas investments by private and state-owned enterprises, were designed to help stabilise the renminbi, following record amounts of capital exiting the country.
“Last year an estimated [$1.04 trillion] flowed out of China. It is an astonishing amount of money to be leaving the country when you have a closed capital account,” Gleave said.
Stringent controls could deal a serious blow to the offshore investments made by private Chinese companies, particularly if Chinese authorities consider these investments to be speculative rather than as part of the core business.
Under the new measures, an offshore investment by a state-owned enterprise in its core areas would be approved, such as a state-owned bank buying into an offshore bank. On the other hand, if a company was looking to make a very large offshore transaction or one outside its core business (such as a state-owned bank investing in mining), then authorities would take a much tougher approach to requests to take foreign exchange out of the country.
Beijing’s crackdown follows a plummet in the country’s level of foreign exchange reserves, from approximately US$4trn in mid-2014 to approximately US$3trn at the moment.
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