A growing army of Chinese savers, worried about the depreciating value of their country’s Yuan currency, are surreptiously removing their nest-eggs overseas in a practice known as “smurfing”. So much Chinese money is being exported by the thrifty smurfs that the Beijing authorities are worried at a growing imbalance showing up on the economy’s books.
Smurfing may sound harmless enough, based as it is on little blue children’s cartoon characters, and consisting as it does of individuals each carrying small amounts of cash overseas legally, but in large groups of people, usually relatives and friends teaming up, but it is specifically designed to get around Chinese cash controls.
Originally the term was used to refer to money-laundering by American drug traffickers, but Chinese smurfing is legal – to the annoyance of the authorities. To achieve its purpose of getting large sums of Yuan out of China without attracting attention, requires the work of many smurfs squirreling small amounts unnoticed.
Each Chinese citizen is allowed to take up to $50,000 overseas each year. So if a wealthy person gathers ten people to help out, they can transport half million dollars at a stroke, usually to Hong-Kong, United States, Canada or Australia.
Nearly $1 trillion has been moved abroad by individuals and companies in the last year, says US financial news agency Bloomberg. Almost $1bn was withdrawn from China each month by the end of 2015, according to Fitch Ratings. This capital exodus has been so far counterbalanced by the trade surplus – higher exports than imports – but smurfing is now harming public confidence in the Renminbi, the official name of the Chinese currency.
“Companies don’t want Renminbi and individuals don’t want Renminbi,” said Shaun Rein, the founder of the China Market Research Group. “The Renminbi was a sure bet for a long time, but now that it’s not, a lot of people want to get out.”
China devalued the Renminbi by 4% in August 2015 in an attempt to become more market-oriented and encourage exports. But this move triggered an unexpected plunge in stock prices. Since then, the government has pushed down the value of the Yuan by almost 3% yet the situation has not improved. Now many Chinese doubt the stability of their currency.
“Smurfing” is only one of many ways Chinese investors and savers are trying to convert their wealth into other currencies they consider safer. More than 60 “underground banks” were allegedly dismantled by the inspection division of the State Administration of Foreign Exchange last week, suspected of processing more than 1 trillion Yuan in unregulated transactions last year.
The Chinese government is trying to prevent the further devaluation of their currency by depleting their reserves of foreign currencies, from which they have withdrawn $800bn since June 2014. At the same time they are trying to avoid capital flight by limiting overseas transactions made through Chinese bank accounts.
Other techniques used to get money out was to use a bank card to buy an overseas life insurance policies but that practice is now forbidden. Apart from smurfing the other most common ways to get money out are buying overseas businesses or real-estate, which has been fuelling a massive property price explosion in a group of cities where property ownership is not restricted – including London – and under-invoicing exports.
