China’s “Secret Money Laundering” Story Goes Mainstream; Is Promptly Censored

Last week, Zero Hedge first reported on this side of the Pacific, some very troubling news: the biggest offshore buyer of luxury US real estate, that would be Chinese money laundering oligarchs and other member of the upper class, may be locked out of any future US housing purchases for a long, long time. The reason: an unexpected revelation by the power state CCTV channel revealed that contrary to popular disinformation, some of the largest Chinese banks – the PBOC included – were not only permitting but actively encouraging Chinese “money laundering” far above the $50,000/year statutory limit, the immediate result of which was soaring prices of the luxury segment of the US housing market.

We summarized the next steps last Thursday:

“So what happens next? Assuming there is the anticipated resulting backlash and crackdown on Chinese banks, which will finally enforce the $50K/year outflow limitation, this could well be the worst possible news not only for Chinese inflation, which suddenly – no longer having a convenient outlet for the unprecedented liquidity formed in the country every month – is set to soar, but also for the ultra-luxury housing in the US.

 

Because without the Chinese bid in a market in which the Chinese are the biggest marginal buyer scooping up real estate across the land, sight unseen, and paid for in laundered cash (which the NAR blissfully does not need to know about due to its AML exemptions), watch as suddenly the 4th dead cat bounce in US housing since the Lehman failure rediscovers just how painful gravity really is.”

We forgot to mention one other thing that would promptly happen: the rest of the US mainstream media would quickly catch to this critical story which is still woefully unreported.

First, the WSJ, from earlier today, which basically provides a recap of what we wrote before:

China’s major banks have halted an experimental program, sanctioned by the country’s central bank, that helped citizens transfer large sums overseas despite government capital controls, according to people with knowledge of the matter.

The halt, which the people said was likely to be temporary, comes after the program was criticized by China’s powerful state television broadcaster, underscoring the political sensitivity of the issue of wealthy Chinese moving money abroad. Experts said the criticism could set back China’s efforts to ease its grip on the country’s financial system.

 

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The controversy comes at a politically sensitive time. China’s top leadership is deepening a nationwide effort to fight corruption, with a focus on officials suspected of trying to move abroad assets they might have gotten through bribes or other illegal means. Earlier this month, Liu Yunshan —a member of the Communist Party’s top decision-making body who is in charge of the country’s propaganda apparatus—called on the government to address the problem of what are known in the country as naked officials, or those whose families have moved overseas.

 

Analysts and economists have widely acknowledged that China’s closed capital-account system has become more porous and that the rules are routinely circumvented. A 2008 report by the PBOC said that up to 18,000 corrupt officials and employees of state-owned enterprises had fled abroad or gone into hiding since the mid-1990s, and that they were suspected of having taken $123 billion with them. A favored method, according to the PBOC report, involved squirreling cash away with the help of loved ones emigrating abroad.

 

The CCTV report brought to light a trial program the PBOC launched about two years ago that allowed a few approved banks, including Bank of China, ICBC and China Citic, to start offering cross-border yuan remittance services for Chinese individuals through their branches in the southern province of Guangdong. The PBOC never publicly announced the program because it intended to carry out the trial quietly, the people familiar with the matter said.

 

“The program itself is neither illegal nor improper as it’s been approved by the central bank, but the question is if any particular bank has gone too far by offering clients services they are not supposed to,” said a senior executive at a big state-owned bank in Beijing. “We all had to put a brake on it before the central bank draws a conclusion from its investigation.”