Mobius’s Bank Headache Highlights Scrutiny On China Outflows

Emerging markets investor Mark Mobius is discovering what many residents of China have known for months or even years: It’s becoming increasingly difficult to transfer money out of the country.
Mark Mobius Photographer: Simon Dawson/Bloomberg
Mark Mobius Photographer: Simon Dawson/Bloomberg

Emerging markets investor Mark Mobius is discovering what many residents of China have known for months or even years: It has becoming increasingly difficult to transfer money out of the country.

Mobius put a spotlight on the issue in a series of media interviews in recent days, saying he was having trouble transferring about 3 million yuan ($432,270) offshore amid “crazy” documentation requests. Mobius, best known for his early investments in developing countries over a multi-decade career at Franklin Templeton, later told Hong Kong newspaper Ming Pao that the issue “seems to have resolved.”

While details of Mobius’s transfer request remain unclear, the experience appears typical of both foreign residents and local citizens trying to move money overseas. Restrictions on capital outflows have always been stricter in China than in many developed economies, but authorities have tightened scrutiny over the past few years as the country’s volatile economy and policy making prompted residents to seek more exposure to offshore assets.

Authorities have been cracking down on practices that many use to bypass the country’s capital control rules and closing loopholes including virtual currencies to prevent illegal outflows. Even money transfers between domestic bank accounts have faced greater scrutiny, with stricter know-your-customer requirements and checks on account flows, as part of a broader effort to crack down on illegal activities including internet scams.

The money Mobius had in the account stemmed from a property sale and he sought to transfer from a HSBC Holdings Plc account in Shanghai to one at the same bank in Hong Kong, he told the Hong Kong Economic Journal.

For a foreign account holder like Mobius, and with a large lump sum involved, the requested documentation could typically include proof of source of his funds, and potentially records of the property transaction in his case.

The complaint shines a spotlight on capital controls at a time when authorities are on high alert to guard against major financial and economic risks. The incident may also cast a shadow on Beijing’s efforts to woo foreign investors.

Mobius told Fox Business it was the government trying to restrict the flow of money out of the country. “So I would be very, very careful investing in China,” he said. 

The founder of Mobius Capital Partners declined to provide further details on his transfer in an email to Bloomberg News.

No Change

China’s foreign exchange watchdog pushed back on his claim, saying the country’s cross-border money transfer rules haven’t changed, according to a written response to Bloomberg late Monday. The authority pledged it will continue to push for opening up and guide banks to optimize their cross-border services.

While declining to comment on any individual client, an HSBC China spokesperson said that it “did not receive any requirements from the Chinese regulators to restrict outbound remittances, nor are we aware of any policy changes recently by the Chinese authorities with regards to cross-border capital outflows.” 

Gary Ng, a senior economist at Natixis SA, said the case is probably related to the internal “know your client” process, which can vary among banks.

“While China has increased the scrutiny of cross-border capital flows under its regulatory framework since 2015, it is unlikely to restrict receipts from portfolio investment amid its gradual financial opening, especially from corporates.”

--With assistance from , and .

(Adds comment from HSBC in 11th paragraph.)

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