Australian actress Cate Blanchett wanted to sell her home on Sydney’s waterfront. The buyer who wanted it was from China. The trouble started right there.
Getting the money out of China proved impossible. The $20 million ($14.9 million) price tag was far in excess of the $50,000 limit on what Chinese are allowed to convert each year due to capital controls. The would-be buyer couldn’t settle, and the deal fell apart — one of dozens of failed sales affecting Chinese nationals in Australia, according to several realtors handling such transactions.
As Chinese citizens embark on an unprecedented buying spree of foreign property, the Blanchett case illustrates how such money flows have created an economic and political backlash, both in China and abroad. Nowhere is this clearer than in Australia, the developed nation most exposed to China.
Chinese authorities are stepping up capital curbs just as myriad restrictions in Australia have made mortgages tough to get for foreigners, putting buyers from China in a sandwich squeeze that could dent the property market down under. While that’s not unwelcome for Australia’s central bank, which is keen to take some steam out of rising prices, it shines a light on the struggle to digest China’s cash exodus as it flows further afield into locations from Malaysia to Florida.
“People are finding it’s very hard to get a mortgage here and then find they can’t get their money out of China, and they’re stuck,” said Lulu Pallier of Sotheby’s International in Sydney, who handles high-end sales to Chinese buyers.
Chinese authorities worry that outflows of capital, exacerbated by the declining yuan, could be a continued driver of devaluation. Estimated outflows in October reached $73 billion, picking up again after having slowed mid-year, according Capital Economics Ltd. Estimates from Bloomberg Intelligence show about $620 billion flowed out in the nine months through September.
President-elect Donald Trump’s proposed tax cuts and infrastructure binge could accelerate such flows by revving up U.S. growth and inflation and pressuring the Federal Reserve to lift interest rates faster than current market bets. The yuan has fallen almost 6 percent this year to the lowest level since mid-2008.
“If the U.S. rates rise and the U.S. economy accelerates, it will be a matter of time when more capital leaves China,” said Stephen Jen, chief executive officer of Eurizon SLJ Capital Ltd. and a former International Monetary Fund economist.
Tighten Loopholes
Chinese banks have been told to tighten loopholes that allow individuals to evade capital controls, and police have started arresting people in a campaign to prevent cash finding its way out. Authorities have also banned friends or relatives from grouping together currency quotas, curbed the cross-border activities of underground banks and asked lenders to reduce foreign-exchange sales.
Still, there are plenty of alternative routes for determined buyers. Business owners can finance their home purchases through offshore trading companies, while some Chinese developers allow clients to pay for overseas units in yuan.