Due to a weakening domestic economy and declining Yuan value, mainland Chinese citizens are increasingly setting up bank accounts in Hong Kong to seek better interest rates and invest in financial products as a hedge.
Following new foreign exchange restrictions by the Chinese Communist Party (CCP), individuals have engaged in “ant migration,” which involves bypassing official channels through various methods, including informal money exchanges, to funnel money into Hong Kong. Insiders reveal that these unofficial channels often have tacit approval from high-ranking CCP officials.
Veteran banker Victor Ng Min-tak asserts that such fund outflows to Hong Kong could not occur without some level of CCP involvement, stating that officials selectively “give the green light” to these transactions.
Increasing Reliance on Hong Kong Banks for Financial Security
Earlier this month, our reporters noted a significant influx of mainland visitors outside a China Bank branch in Chungking Mansions, on Nathan Road, Tsim Sh Tsui. Even before the bank opened, queues had formed, often facilitated by insurance brokers standing in line on behalf of their clients.
Ms. Zhu, an early arriver from Xi’an, explained that she traveled to Hong Kong specifically to open an account, hoping to deposit HK$100,000 to benefit from higher interest rates. She chose this particular branch due to its first-come, first-serve ticketing system. “About 40 people queue up here every day,” she noted.
Ms. Zhu openly stated that because of the dismal interest rates in mainland banks and the depreciation of the Yuan, she’s looking to diversify her financial portfolio. Current regulations limit each Chinese citizen to a US$50,000 foreign exchange quota per year and 20,000 yuan in cash for travel. “Given the economic downturn, it’s time to take proactive measures,” she said.
Mr. Kwok, a regular Hong Kong visitor, also lined up with his family, saying that his existing insurance policies in Hong Kong made it convenient for him to set up a bank account there. “Given the economic instability, I’m holding off on other investments and parking my money in a Hong Kong bank,” he mentioned.
Analysts: Regulatory Leniency Enables Retail Investors to Seek Hong Kong Alternatives
Speaking on the web show “Precious Dialogues,” economic analyst Law Ka-chung said that the CCP is cautiously allowing mainland residents to open Hong Kong accounts through state-owned banks. “Hong Kong falls under China’s sovereignty, and controlled capital flow is manageable from the CCP’s perspective,” he noted.
Mr. Law speculated that the CCP would not permit a mass exodus of capital to Hong Kong. “Many of those opening accounts are retail investors; the volume is not significant enough to be a concern,” he said. He further elaborated that small deposits in high-interest accounts or investments in local financial products could indirectly strengthen the Yuan market in Hong Kong.
While the Chinese government seems lenient in allowing the opening of personal accounts, Mr. Law cautioned that business accounts would face tighter scrutiny.
Veteran banker Victor Ng Ming Tak, also appearing on the show “Precious Dialogues,” stated that mainland citizens lining up for Hong Kong accounts are merely acting in their self-interest. They operate under the CCP’s “One Country, Two Systems” framework and seek to move as much capital as possible while the window is open.
“The CCP’s control over Hong Kong is incomplete and might take another 3-5 years to tighten, providing a grace period for people to diversify their assets,” Mr. Ng observed.
Covert Financial Channels Reportedly Backed by High-Ranking CCP Officials
Mr. Leung (pseudonym), an overseas resident with years of experience in Hong Kong’s financial services, has confirmed the prevalent use of underground money exchanges by mainlanders for transferring funds. He cited instances where these channels were used to skirt around China’s annual US$50,000 foreign exchange limit for sending children’s tuition abroad or for offshore investments.One case involved a friend who liquidated a property for 11 million Yuan. Using an underground money exchange, the funds were first sent to a pre-established Hong Kong account and then forwarded to the country where his children are studying.
Another friend utilized an insurance broker with connections to both Hong Kong and mainland China. Purchasing insurance as a wealth transfer tool, these brokers sometimes collaborate with underground money exchanges to facilitate account openings and currency conversions.
Mr. Leung stressed that these operations require introductions and are usually conducted by trustworthy individuals—some even allegedly backed by high-ranking CCP officials. Transactions may vary depending on the regulatory climate, with fee hikes and transaction reductions as compliance tightens.
Mr. Ng emphasized that involvement from CCP officials in these covert financial practices is almost a given. “The operations are far more intricate than they appear. They are structured to accommodate officials at various administrative levels,” he said.
Economic analyst Law Ka-chung noted that while such transactions are becoming more scrutinized and costly, they’re not impossible. He mentioned that high-ranking CCP officials began moving assets to Hong Kong as early as 2013, with peak activity between 2015 and 2017.
Uncertainties in Mainland China and Hong Kong Spurs Asset Relocation
Mr. Leung, familiar with mainland residents desiring to move assets overseas, states that most seek to store U.S. dollars and purchase insurance policies in Hong Kong. These individuals often cite poor air quality, food safety, and an unfavorable economic and political climate as motives for relocating their assets or themselves.“The pandemic and the stringent domestic policies have only heightened the urgency for many to consider leaving China,” Mr. Leung observed.
He highlighted the complex and challenging regulations mainlanders face in transferring assets. Although Chinese policies technically allow for lump-sum transfers, the verification process is practically impossible for most.
“For instance, even proving ownership of money in a bank account can be a daunting task, given that many banks are now restricting the annual US$50,000 remittance limit. People are frustrated that they cannot freely use the money they’ve earned,” Mr. Leung said.
Despite the allure of Hong Kong as a financial transit hub, Mr. Leung warns that the former British colony no longer offers the safety it once did. “Assets are typically moved to third countries as soon as possible,” he advises. While transferring through underground money exchanges allows for more immediate liquidity, insurance-based transfers require a longer gestation period before loans can be taken out against them.
Mr. Leung also cautioned about triggering red flags that could result in account closures. “If you transfer your funds out as soon as they hit your Hong Kong account, it could raise suspicion. Keeping a nominal balance and maintaining a clean record is advisable,” he added.
Hong Kong as a Transitional Financial Hub: Benefits and Risks
Veteran banker Mr. Ng sheds light on why mainlanders are apprehensive about transferring assets solely to Hong Kong, particularly after the enactment of the National Security Law. “Prior to the law, Hong Kong was seen as a safe conduit for transferring money internationally,” he notes.Explaining the dynamics of utilizing Hong Kong as a transitional hub, Ng states that to remit money to other countries for property investments or other reasons, one must pass rigorous Know Your Customer (KYC) reviews mandated by anti-money laundering regulations.
“These reviews scrutinize the source of the funds, and any irregularities can trigger an investigation. This is why some choose to first ‘clean’ the money by purchasing financial products in Hong Kong,” he elaborates.
Mr. Ng also discusses strategies for moving large sums. For amounts in the millions or tens of millions, an “ant-moving” technique is employed, where money is transferred to Hong Kong in various batches. For even larger sums, commercial channels, like establishing a trading company, are used.
“While personal accounts can be effortlessly opened by Hong Kong citizens, corporate accounts are more closely vetted due to concerns about facilitating illegal activities, particularly in countries like Russia and North Korea,” he points out.
Mr. Ng highlights that despite 300-400 thousand people leaving Hong Kong, the territory has seen an influx of 300-400 billion Yuan. He attributes this to countries like Russia and North Korea engaging in currency exchanges and to mainlanders converting their Yuan to Hong Kong dollars and then to U.S. dollars
As for future restrictions, economic analyst Mr. Law anticipates tightening financial controls in Hong Kong. “The Hong Kong government’s current interest in developing digital currency is indicative of this trend,” he states.
Mr. Law adds that while individual outbound transfers haven’t yet faced significant barriers, he is aware of corporate-level cases under scrutiny for even modest five-figure transfers. “Hong Kong’s role as an ‘offshore’ financial center is dwindling. Going forward, it could become increasingly difficult to move money out of the territory,” he warns.
