Caixin
Apr 05, 2017 04:26 AM
COLUMN

Doing Business in China: China’s Needy Currency Tells Foreigners ‘Love Me, but Don’t Leave Me’

(Beijing) — Whenever I think about taking my money out of China for use somewhere else, say for travel or investment, I’m always reminded of the famous line from the 1970s Eagles hit Hotel California: “You can check out anytime you like, but you can never leave.”

That message is one of the most common themes you hear from just about anyone who has done business here, or invested in any other form for that matter. China is quite happy to give foreigners its currency, the yuan or renminbi, but becomes equally stingy when it comes time to change that money back into other foreign currencies.

This particular phenomenon seems to come and go in cycles, depending on how well China’s economy is doing. Back when I worked here as an English teacher in the 1980s, nobody outside China had any interest in the multicolored notes that often got derided as “funny money,” graced over the years with images of peasants, minorities, scenery and now pictures of Mao Zedong.

All that changed in the late 1990s and first decade of the 21st century, when China’s booming economy sparked a love affair between the currency and investors worldwide. I was once among those, parking my savings in yuan during that period for guaranteed good returns as the currency rose steadily against the dollar.

Now of course the wheels have come off the cart just a bit, and China’s weakening economy means the yuan has fallen out of favor with global investors. As that’s happened, China’s foreign exchange regulator has returned to its more parsimonious roots, making life difficult for anyone seeking to get their money out of China.

I had a chance to chat on the subject with well-known and colorful investor Jim Rogers during his visit to Beijing last week, and he says quite bluntly what everyone already knows: You can bring money into China a lot easier than you can take it out. He adds that investors should always understand the liquidity of where they’re investing, and that the yuan ranks decidedly low on that score.

Just about everyone who has worked or invested in China has a tale to tell about all the hoops you have to jump through to get money out of the country. Somewhat ironically I’m not one of those, since I’ve always either been paid in foreign currency or, in the case of my one brief local business foray, didn’t have the luxury of generating any profits.

But anyone who has worked here and earned a yuan-based salary will tell you that getting their savings back home when they’re ready to leave can be quite the challenge. Saving pay slips to show the money was legitimately earned is key, they say, and whatever you do don’t get laid off before you go.

If you don’t have the necessary documentation, foreigners are limited to changing the equivalent of $500 each day no questions asked, which could end up as quite a few unpleasant bank trips if you’re looking to change a few hundred thousand dollars. And if you’re thinking of taking your wads of cash out with you on your person, you’re also limited to taking no more than the equivalent of $5,000 without making a formal customs declaration.

One acquaintance told me of a misadventure involving an American who sold a Shanghai property he owned and needed dollars to pay off the mortgage. Unfortunately the man was unemployed at the time, wiping out the quota he had earned while he was working. Ultimately he had to use the quota of a brother who also happened to be working in China, and then had to rely on parents back in the U.S. due to restrictions on bank transfers within China, since the mortgage initiator was based in China.

If you’re scratching your head trying to figure all that out, another acquaintance told me a simpler tale involving some investors who had done well with a Chinese company over the years. With that success in hand, they wanted to go global with a new endeavor and needed to sell the original company to fund the newer operations.

Of course they hit an instant roadblock when they went to change the money, and only managed to solve the problem by “borrowing” excess quota from another company that conducted cross-border business. That approach, while legal, was problematic because the investors cashing out had to pay fees, and also spend the time and effort figuring out who had and was willing to sell excess quotas.

Then of course there are always the time-tried money changers who operate in a gray area. I remember these seedy types from many decades ago and thought they were a thing of the past. But many inform me they continue to exist, and still provide a very important service.

The situation is just as bad for Chinese, most of whom have learned an even wider array of tricks to circumvent the restrictions. But moving big sums is still a headache for everyone, and is even reportedly causing at least three major Chinese purchases in the U.S. worth $1 billion or more to teeter on the brink of collapse.

At the end of the day, China is and will continue to be an attractive place to work and invest for at least the next few years and probably much longer, which is why people like Rogers are still willing to park their money here despite the hassles of taking it out. But anyone serious about their money should consider exit strategies from an early stage, and be prepared to see new barriers rise and fall with the ebb and flow of China’s economy.

Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com.

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