Banking in China: Once easy, now closed to foreigners

Dateline: Beijing, China

I touched down in Beijing two days ago and have been busy working on planting some new flags. While the official purpose of my visit is rest-and-relaxation with some friends from my network, I couldn’t pass up the opportunity to check in on some Chinese banks.

For years, opening a bank account in China was one of the easiest things to do. In fact, we discussed the idea as an excellent diversification strategy at my Passport to Freedom conference in 2015.

The process went like this: you showed up at one of the four largest state-owned banks, such as the Agricultural Bank of China, with passport in hand and a Chinese interpreter and they opened an account for you. For years, the account opening requirements were almost nonexistent and among the easiest in the world.

The biggest challenge for most people was getting someone to speak in Chinese, as most bankers at banks such as ICBC and Bank of China didn’t speak much English. However, occasionally you would even get lucky and find someone who spoke enough broken English to handle the process.

While China was and still is just about the worst place to open a bank account or do anything remotely, the process was an easy side project on a trip to Beijing like the one I’m here on now. Fly in for a few days, see the Wall, eat some roast duck, and open a bank account at Bank of China.

No longer.

We frequently discuss the idea that banking and just about every other form of flag-planting is becoming more difficult these days. Countries around the world are tightening the requirements on who their bank opens accounts for us.

In Latvia, one of the most popular destinations for offshore companies to open accounts in the European Union, the central bank is under so much pressure from the US government that banking there has become an exercise in compliance rather than actually doing business.

At least you can still open a bank account in Latvia, but in many other countries, you may not.

Add China to that list.

Last year, the Chinese central bank issued new regulations for all of its banks, particularly state-owned banks. While I’m no fan of governments owning assets that could be privatized, most people here in China strongly believe that the Big Four state-owned banks will never go under. They’re essentially too big to fail.

However, my research team did some checking before my arrival and found that only two banks here – neither of them state-owned – are accepting foreign clients with ease.

No longer can you waltz into a branch here in Beijing with nothing more than ID and get an account. In fact, tourists can no longer open accounts with most banks at all.

That’s a shame because many Chinese banks use the Unionpay system that acts as an alternative to Visa and Mastercard. Unionpay is an excellent non-US alternative if you want to diversify away from the United States and its unsound fiscal policies.

Chinese banks are also about the only way to pay for stuff with WeChat, which is important if you do business in China.

On top of that, China is a strong world power that in and of itself offers excellent jurisdictional diversification.

Now, however, you need to be a resident to open an account. While Hong Kong companies also used to be able to open accounts here, they too are denied by most banks and welcomed only with proof of Mainland business activity at a few others.

I once said that, in the offshore world, “when one door closes, another opens”. And that is still true at times. While China is no longer willing to open accounts for foreigners, I have no doubt that some other country will soon open up its banks to foreigners to fill the gap.

However, banking in China was long a reliable strategy – especially for US citizens – and it’s a shame that the option has largely gone away.

This will not be the last time a country makes its banking rules more strict. In fact, it’s happening all over the world. Even Georgia and Azerbaijan – two of the world’s easiest, and dare I even say lax, places to bank – have tightened up rules on foreign companies opening accounts there.

When Azerbaijan, which gladly accepts any Russian or Iranian that walks up, is telling depositors they won’t accept their business, you know the trend is heading in the wrong direction.

Turkey made similar changes a few years ago and now requires a Turkish tax ID number to open an account as a tourist.

That’s why I frequently discuss the idea of opening bank accounts as “tunnels” with the people I work with personally. There are bank accounts, like those in China circa 2016, that will allow you to bank with them for a minimum deposit as low as $1,000 or even $1 in some cases.

In many cases, once you have an account open, the bank will not close it; they’ll merely stop accepting new accounts from foreigners.

That’s why it can be a great idea to open small accounts now with the understanding that they may be unavailable to you in the future. When I talk about taking action, part of the reason is that flags available for you to plant today will not be available tomorrow.

The worst affected by this will be small depositors who don’t have a lot of cash. Sure, Bank of Singapore recently increased its minimum from $1 million to $2 million, but many of their depositors already met the more stringent requirement.

The person with a mere $1,000 will have fewer and fewer options as time goes on. With greater compliance costs, and with more and more wealthy people from the emerging world, banks don’t have time for some foreigner that doesn’t live there to drop $1,000 into their bank. That customer simply brings too many headaches.

Banking in China as a foreigner has shown that.

There are two angles here: if you are wealthy and can afford to make a large deposit, your options will shrink, but not by nearly as much. I expect more countries to open up to wealthy individuals.

However, if you are a small customer, your options will decrease over time, and the best time to begin diversifying your accounts is now. It feels like every day that I hear about some bank no longer accepting certain types of customers, be it US citizens, or foreign companies, or even tourists.