Bankers fear China curbs on offshore investments

Concerns raised after news of foreign wealth manager being denied exit from Beijing

HONG KONG/SHANGHAI • News of a foreign wealth manager being denied exit from China last week is raising concerns for global private banks, as they seek to tap trillions of dollars of wealth offshore in the face of Beijing's growing curbs on overseas investments and outflows.

The banker, a Singapore-based member of UBS' wealth management business, was prevented from leaving Beijing and asked to meet local officials this week. Her identity is not known yet.

Although the purpose of the meeting is not publicly known, the news still led several banks, including UBS, Citigroup, JPMorgan, Standard Chartered and BNP Paribas, to ask private bankers to reconsider travel to China, people familiar with the matter said on Monday.

The Swiss bank on Tuesday rescinded its travel guidance and said in a statement it was business as usual in China. UBS chief executive Sergio Ermotti on Thursday said the request by the Chinese authorities that the employee delay her departure from Beijing was found to be unrelated to the bank or the employee.

"We know for sure at this stage it had nothing to do with the bank or with (the employee)," Mr Ermotti said on a call with journalists on the sidelines of its investor day. He said the matter was quickly clarified and the employee was never detained. Such situations happen routinely with other banks, he added.

The uncertainty around the UBS banker's delayed departure comes at a tricky time for foreign investors in China as Beijing steps up curbs and increases scrutiny on offshore investments and outflows amid a weakening economy and currency.

And as the authorities continue a sweeping campaign to root out graft, some bankers are beginning to get nervous about pursuing arguably one of the biggest opportunities worldwide in the wealth management business.

 
 

The UBS snag could prompt clients as well as their offshore advisers to be more cautious in making new investments, four senior private banking sources said.

A high degree of secrecy means there are no credible data on the total assets that Chinese individuals hold offshore. Offshore private banks are at liberty to help clients - including those from China - manage wealth already outside the mainland via legal means such as through company stock listings or the creation of trust companies.

But UBS' recent hiccup comes as bankers and lawyers expect China to get more stringent about the offshoring of wealth. They fear further curbs as Beijing grapples with a weaker currency, and gets access to taxpayer data by sharing financial information with other countries.

The authorities now "may be gradually increasing supervision of offshore assets", said Mr Song Xu, a partner at the Shanghai office of law firm Zhong Yin.

Under new global standards aimed at cracking down on tax cheats, China this year began a two-way exchange of information about bank accounts with other nations, which consultants say will give the authorities more visibility about the offshore holdings of its citizens.

"The capital control measures in China are getting tighter, not looser. And the ongoing crackdown on corruption and deleveraging has also created new barriers for offshore wealth management," said a Beijing-based boutique wealth manager. "While Chinese clients are still very keen to diversify their assets, there will be a lot more caution on all sides."

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 27, 2018, with the headline 'Bankers fear China curbs on offshore investments'. Print Edition | Subscribe