To offset capital outflows partially due to expectations of a weakening Chinese Yuan, the government put in place stringent capital controls which aims to closely monitor the foreign currency transactions and restrict purchases of insurance products in Hong Kong. These measures to retain its currency onshore have sparked fears and uncertainties, prompting quicker offshore transfers of Chinese Yuan as well as boosting illicit financial flows through underground banking and fake trade invoicing.
According to RFi Group data, about 46% of Chinese banked consumers were very concerned about the impact of the Chinese economic outlook. Among those who banked offshore, investing or maintaining savings in sound banking environments (e.g. to avoid local currency devaluations and banking instabilities) is one of the top reasons why they hold banking products overseas.
While money changers and remittance providers stand to benefit from the surge in offshore Yuan transfers, some are seeking to increase profits from other currencies for fear that the government will enact further capital controls.
Source: RFi Group China Retail Banking Council (H2 2016)