Getting Money Out of China: Macau Casinos, Xinjiang Jade and French Wines?

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Op-Ed Commentary: Chris Devonshire-Ellis

Not made to be worn

May 11 – The recent case over the alleged murder of Neil Heywood and the suggested transaction involving US$800 million of cash out of China to the United Kingdom has not been fully investigated by the media, not least because China has placed such a blanket of secrecy over the entire affair. Yet one question begs answering: if allegations Heywood was involved in a scheme to transfer illegally obtained money out of China, what were the routes, where was it intended to go, and if any was transferred, where is it now?

If true, one thing is for certain – Heywood was a money-launderer. How complicit the British government or its banking institutions would have been if this was the case is another interesting point – and I again stress “if true” – because this case has sprung so many surprises and red herrings anything more can only be intelligent conjecture.

However, foreign governments would take an interest in entertaining the illicit smuggling of ill-gotten gains – not least for political reasons as a stick to hold above other nations’ politicians if they are caught in this way. The global banking system of course has its rogues, all willing and able to take a cut of smuggled U.S. dollars, RMB and even North Korean won (all money has a value somewhere). As we speak, a senior executive of one of the major global banks remains under arrest in China pending investigations into how a prominent Chinese official was able to send millions out of the country to Singapore.

Likewise, I’m sure the Chinese government is looking into whatever plans Heywood may have developed in slipping such a huge amount out of China. Yet the mass movement of money out of China, despite the fact that the country has strict currency regulations and mechanisms in place, does not mean that sending RMB out of China is necessarily either illegal or difficult. Examples can often be spotted when certain commodities become suddenly valuable.

Casinos

Macau’s casino business has boomed, of course, and the enclave now turns over more money than Vegas. In fact, the Venetian Macau turns over more money than the real Venice, as we reported back in 2007. Furthermore, Macau’s gambling revenues alone are now more than five times those of Las Vegas, growing at 42 percent over the past year and reaching US$32.5 billion in 2011. Enough said.

Xinjiang jade

The rare, “mutton fat” white jade has been mined in Xinjiang for centuries. It was also used as a centerpiece for some of the 2008 Beijing Olympic medals and, since then, the price has shot up. The trade, centered around Hotan, has seen the price of white jade soar to record highs. In fact, the Chinese government has banned party officials from buying it. An antique white jade seal sold for over US$12 million at Christie’s Hong Kong in 2010 for a piece the size of a regular carved chop. You wouldn’t need to acquire too much white jade, purchased in RMB at Hotan prices, to get that across the border and resell for a handsome profit in U.S. dollars, especially as prices now approach US$100 a gram. And naturally, Chinese officials controlling the supply of white jade control the market price. Is Hotan the home of the new Chinese version of De Beers?

French wines

Even 4th growth Bordeaux such as the Duhart Milon (Lafite) are selling out in advance of bottling this year’s vintage – which is still on the vine. The purchasing of large volumes of wine for RMB in China is both legal and naturally encouraged by certain wine distributors in China, including individuals paying up to US$1 million to acquire large amounts of Lafite, Latour and Margaux.

Paid in RMB, the wines are held in storage in Hong Kong, which relaxed its import duties on wines three years ago. The buyer collects the product in Hong Kong and can resell in foreign currency. Controlling one million dollars’ worth of stock of course makes you a major player in the market, and with prices of French Premier Cru going up by 20 percent a year, wine is now a tradable commodity as well as an investment and a mechanism for swapping RMB legally into U.S. dollars. That, in a nutshell, is why French wine prices have shot up in value over the past three years.

The phenomena can, as mentioned, be easily spotted. A small sized but valuable commodity, or even better, one that can legally be paid for in China but is not even in country and is appreciating in value. With significant amounts of wealth – savvy Chinese businessmen can even manipulate the global resale value ensuring profits can be made. As I was told recently when examining a beautiful diamond necklace and commenting how lucky the girl was to be able to wear it: “Oh no Sir, this piece was not made to be worn.”

Chris Devonshire-Ellis is the founding partner of Dezan Shira & Associates and founded the practice in 1992. The firm provides corporate establishment, tax, accounting and on-going compliance assistance and advice in China. Please contact china@dezshira.com or visit us at www.dezshira.com.

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