China appears ready to allow more overseas investment

Move means more cash could flow to global real estate markets

There are signs China is preparing to ease restrictions on how much money can flow out of the country as part of an aggressive strategy to promote its currency overseas, in Canada and elsewhere. The move would make it easier for individuals and companies with mainland Chinese cash to spend it outside China, including in real estate markets here and in other global cities.

This is happening as public concern in Vancouver over skyrocketing real estate prices has reached a fever pitch. Much of the blame has been focused on wealthy offshore investors, some of whom are from China.

There is now a $50,000-US-ayear limit on how much Chinese currency, which is known as the renminbi or yuan, an individual can take out of the country each year.

This has pushed some buyers to creatively skirt the restrictions by moving chunks of money using t he names of friends, relatives and employees or inflating invoices on import and export transactions.

However, China’s State Council, its cabinet, is expected to say in the next few weeks it will do something to either relax or remove this limit, starting first with people and businesses located in specially designated “free-trade” zones where it experiments with new policies, according to the Wall Street Journal.

The Journal explained that while Beijing doesn’t want a surge of money to move offshore, it is also “gunning” for the renminbi to be deemed by the International Monetary Fund as an official reserve currency, giving it the status of the U.S. dollar, euro, yen and pound.

IMF officials are in China this week, and Beijing is eager to show them the renminbi can be used more easily outside of China.

There is a lack of data to measure the extent and impact of foreign investment, in particular cash from mainland China, on the Vancouver real estate market.

But some observers, including Mayor Gregor Robertson, are calling for government intervention of some kind to curb what is seen as escalating property prices due to such investment.

At the same time, the rise of the Chinese currency has the B.C. government, along with local, international and mainland Chinese banks with operations in Canada, urging companies here to consider how they might use the renminbi to make payments, negotiate deals and hedge against risk the way they do with the U.S. dollar.

Right now, estimates are that less than five per cent of Canadian business with China is done in renminbi.

But, anecdotally and privately, some attendees at the Pacific Finance and Trade Summit on Tuesday in Vancouver said they are looking at the mechanics of holding renminbi accounts.

The chief financial officer of a Vancouver-area company that buys steel from China on behalf of major real estate and infrastructure developers in Western Canada said its agents are suggesting it make purchases in renminbi rather than U.S. dollars. In return, it could expect “some kind of discount. For us, a penny or a couple of pennies (discount) is a big deal in terms of total cost.”

Beyond simply seeking a sales discount, companies should think of working in renminbi as a way of building long-term relationships with Chinese companies, said Rongrong Huo, London-based head of China and renminbi business development at HSBC Bank.

“We don’t want to force the (renminbi) currency on people, but it’s about creating options,” said Huo, on the sidelines of the conference. “If a Chinese seller is willing to quote cheaper in renminbi, why wouldn’t you take it?”

“It’s also about then being able to approach other (Chinese) sellers, perhaps smaller sellers, so you can broaden your supply chain. This allows for talking about other terms, including better, longer contracts; instead of paying in 90 days (stretching it to) 180 days.”

Beijing has been actively promoting wider use of the renminbi by giving the green light for a string of renminbi trading hubs in so-called “offshore” cities, including Hong Kong, Singapore, Paris, London, Tokyo, Seoul and Sydney. These are places where a bank has been appointed to quickly clear renminbi transactions.

In Canada, the Industrial Commercial Bank of China’s offices in Vancouver and Toronto will complete transactions between any currency in the Americas and the renminbi.

Huo, the HSBC executive, said B.C. Finance Minister Mike de Jong and other government officials have travelled to London twice in the last two years to gain insights on “how the offshore renminbi centre in the U.K. took off so quickly. We looked at what is working, what isn’t, and the role of the public and private sectors.”