Since early 2018, the government of China has tightened policies targeting millionaire investors in the country holding their wealth overseas to avoid large taxes, and it may lead local investors to alternative assets like crypto.
Chinese investors rely on the Swiss offshore banking industry, Hong Kong real estate market, and foreign stock markets to hoard millions of dollars worth of properties, assets, and cash outside of mainland China.
But, local financial authorities have started to crackdown on investors that amass significant wealth in overseas markets.
In recent months, the Chinese government has begun to cooperate with agencies in 83 countries that follow the Common Reporting Standards (CRS) established by the Organization for economic Cooperation and Development (OECD).
The involvement of the Chinese government with the OECD and CRS is expected to lead to direct communication and cooperation with Virgin Islands, Bermuda, Luxembourg, Switzerland, and the Bahamas, five regions that investors often depend on to save massive amounts of capital in the offshore banking sector.
Last month, China disclosed that all 83 countries under CRS and OECD will share data related to financial accounts held by Chinese citizens, allowing the government to target high profile millionaire investors.
The go-to market for Chinese investors in the real estate sector of Hong Kong. Individuals based in China can easily set up a shell company in Hong Kong and receive a bank account with the name of the firm to move funds from China to Hong Kong, with which the investor can invest in properties in the region.
The influx of investors from China to the real estate market of Hong Kong led premiums on apartments to rise substantially, creating a real estate bubble that has made it more challenging for local residents to acquire properties.
It is difficult and ineffective for the Chinese government to restrict money flowing from China to the Hong Kong real estate market as it would require a highly impractical process of banks cooperating with the government to censor and monitor every large transaction.
But, it is possible for the government crackdown on individual investors holding large amounts of foreign assets and cash in offshore savings accounts.
Cryptocurrencies like Bitcoin and Ethereum remain as the only alternative outside of the Hong Kong real estate and stock market for local investors to store significant capital in. The lack of correlation between crypto and the broader financial market could appeal to investors as a safe haven against the global economy.
Hong Kong and Taiwan-based digital asset exchange executive Terence Tsang stated in an interview that the over-the-counter (OTC) crypto market of China still remains active subsequent to the imposition of a blanket ban by the government.
“The latest warning and potentially increased monitoring of foreign platforms is targeted at a batch of smaller exchanges that had claimed to be foreign entities, but are in fact operating in China claiming they have outsourced their operations to a Chinese company,” Tsang said.
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