The short answer is no, but they do use crypto, and here’s how
Due to China’s foreign exchange control, foreigners who work in China, Chinese residents who are exposed to political risks, and those who wish to make investment (either for tax evasion or not) or large sum payments abroad are limited to a quota of only 50,000 USD foreign exchange per year, government regulations are much more strict in 2019, but crypto has given some room for international transfers, we are hoping to understand how stable coins is playing a role in this.
China Government Policies & Past Examples
2019 Feb Chinese government declared new rules on foreign exchange control, in previous years, individuals buys foreign currency in various ways, if seller profit above 100K CNY or total exchange amount beyond 5 million CNY, it’s considered criminal activities, other than fines, individual could be sentenced to jail up to 5 years, the bigger the amount, the longer the sentence..
Individual quota for foreign exchange is 50,000 USD per year.
In China, transaction beyond 50,000 CNY, bank transfer beyond 200,000 CNY will be directly monitored by People’s Bank Of China, the central bank.
2018 first half there were 13544 violations, fines amounted to 345 million CNY, starting this year with the new rules, making these fund transfers will only be harder.
Before Crypto
Some examples include individuals use children’s bank accounts when they’re studying abroad, pay for goods with Alipay, WeChat, and as for refunds in foreign currencies, some do this through travel agencies, and myriads of different ways, now mostly under Chinese government’s supervision.
Corporations also have their ways, with almost all of them have bank accounts in Hong Kong, they send CNY to a dealer within China, and the dealer sends them USD in Hong Kong, this is so far most prominent, and least risky too, yet other ways include price manipulations on import export, making loans, invest through offshore funds, etc.
Chinese Government Analyze Patterns
The Chinese government also have countless counter measures, including detecting bank transfer & account opening patterns, matching transaction pattern to company activities, tracing criminal accounts, and limiting company’s abilities to for example, making loans offshore.
The Crypto Way
The advantage of cryptocurrency is that it provides a perfect “gap” to cut off tracking, which is what all the old ways are trying to get at, other advantages include speed (faster than international transfers), trustless (If one chooses to hold crypto by themselves) and simpler (than using trades to cover up or using deposit and loans to cover up)
But the key for most, is still the cost of such transfers, which crypto actually doesn’t have much of an edge, some old ways has on par or lower fees depending on the amount.
We’ve been told by some sources that traditional financial services have been suggesting clients to talk to USDT OTC dealers for transfers under the table, but this is not yet proven on a scalable way.
So as you can see, Bitcoin is not mentioned here, these fund transfers are mostly being done in USDT (dominantly) because of stability, individual or companies do not want to lose value in the process of the transfer.
Basically all of the OTCs quote Huobi for the prices, individuals because of the smaller amount, usually go through OTCs, corporations on the other hand go directly through Huobi’s own OTC.
Private OTC desks do work, but requires much trust, and now the money mostly only go to Hong Kong.
Pricing Breakdown
Because individuals and corporations take very different paths here, we talk about them separately here
For individuals who mostly go through private OTCs, buying USDT with CNY costs approximately 1.5~2%, converting USDT to USD on the other side usually takes 0.5%~1%, total cost around 2~4%, which is not subject to taxes under current law, comparing to underground transfers which are usually 5~8%, this is considered a pretty good deal. These individuals find OTCs from personal connections, nothing public or advertised.
For corporates who usually go through Huobi OTC directly, it costs around 0.5% to buy USDT, and 0.2% to convert back to USD offshore (or in Hong Kong), but is often subject to business taxes, HK 16.5%, Singapore 24%, Taiwan 22%, US 27.5%.
There isn’t much to say about Huobi OTCs, it’s quite straightforward, the private OTCs are more interesting. For Chinese corporations or individuals seeking USD in Hong Kong, these private OTC desks has a partner who are both incorporated in Beijing and Hong Kong, they simply transfer CNY to this partner in China, and partner transfers USD to client account, with a 2% fee, they often compare this to USDT solution considering the rate of USD and USDT of that day, for well established OTCs, former has a higher chance to be cheaper, for smaller ones, latter is usually cheaper. Decision of which route to go is made by clients. A lot of these transfers are still being made in the old way, however if the fund source is considered illegal under Chinese laws, then they usually go to the crypto way.
