Few Aussies buying houses and apartments in Sydney and Melbourne realise that the value of their properties partly depends on the success of China’s attempt to prop up its shaky banks.
Chinese citizens are transferring their money to Australia, with many preferring to park their funds in the nation’s booming property market, according to a recent Australian Business Review article by columnist Robert Gottliebsen. This “money exodus” is gathering speed because many Chinese citizens are scared that their country’s banks or currency will collapse. Hence, they go to incredible lengths to transfer money out of China and into reputed safe havens like the Canadian and Australian property markets.
Alarmed by this financial drain, Beijing has fought back. According to Gottliebsen, Chinese money exit clamps have become more successful, which in turn has reduced the Chinese demand for Sydney apartments.
“Fortunately for those wanting real estate prices to hold or rise in Sydney, the Chinese have been replaced by an equally big rise in negative gearing by Australians who have been frightened off superannuation by the crazy government games,” Gottliebsen said.
According to the Canadian real estate blog Better Dwelling, Beijing has introduced new rules that govern the exchanging of yuan for international currencies. There now needs to be full disclosure of the intended use of the yuan being converted. Chinese nationals must also pledge that the funds won’t be used to purchase property, securities, or insurance products.
“Borrowing or lending on behalf of others is prohibited, and now requires a legal declaration saying this is not happening,” the blog said. “Anyone caught breaking the rules will be denied the conversion, and lose exchange rights for two years. They can also be subject to an anti-money laundering investigation, which could see them in jail.”
In response, an underground banking system has appeared in China, and these entities have developed all sorts of illegal means of getting money out of the country. Though the government has attempted to shut these underground banks down, new ones keep popping up.
The Chinese money exodus has caused a significant rise in global real estate values and has led to a substantial fall in China’s foreign exchange reserves.
Gottliebsen believes the Chinese government fears that the money exodus will tighten domestic liquidity, forcing them to increase the injections they must make to prop up their banks. Many Chinese banks are on the verge of collapse due to bad loans, and the government is determined not to allow this to happen.
The incoming Trump administration will soon be on official talks with China over trade, as well as the sticky political situation in the South China Sea and Taiwan.
“Australians need to understand that large parts of our real estate market are in the middle of that game,” Gottliebsen said.
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