Recently, a large amount of capital from China has been transferred out through various channels, with RMB deposits in Hong Kong surpassing 1 trillion yuan in May, reaching a record high. At the same time, since the full customs clearance between Mainland China and Hong Kong at the beginning of 2023, over 130 Mainland Chinese restaurants have entered Hong Kong, but many of them closed shortly after opening. Some analysts believe that this seemingly incredible phenomenon is actually another way of capital flight from the mainland.
On the evening of June 26, the offshore RMB to USD exchange rate broke below the 7.3 mark, reaching its lowest level since November 2023.
Data from the China Foreign Exchange Trading Center shows that on June 26, the RMB to USD central parity rate was 7.1248, hitting a new low in over 7 months. So far this year, the RMB to USD exchange rate has dropped by over 2%.
Pang Ming, Chief Economist and Head of Research at JLL Greater China, told local media that the recent devaluation of the RMB against the USD is a result of passive depreciation under the influence of factors such as differentiated monetary policies among major economies and rising global risk aversion amid the USD index strengthening.
Political commentator Ji Da told The Epoch Times that due to factors such as geopolitical tensions and recent intensified capital controls by the Chinese authorities, domestic investors in China are once again turning to safe-haven assets.
She said, “They are abandoning the domestic market and transferring funds to higher-yielding assets and regions, indicating RMB depreciation and significant capital flows from the mainland to Hong Kong.”
The Hong Kong Monetary Authority data shows a recent upward trend in RMB deposits after some slight fluctuations.
In April, RMB deposits in Hong Kong rose by 15.2% month-on-month, reaching 1.0882 trillion yuan by the end of April. The total RMB remittances for cross-border trade settlements in April amounted to 1.257 trillion yuan, compared to 1.248 trillion yuan in March.
RMB deposits increased by 4.2% month-on-month in May, reaching 1.134 trillion yuan by the end of May, hitting a record high. The total RMB remittances for cross-border trade settlements in May totaled 1.1832 trillion yuan.
The HKMA stated that the increase in RMB deposits mainly reflects corporate fund flows, and deposit fluctuations are influenced by various factors, including interest rate trends and market fundraising activities.
In addition, Chinese investors injected 129 billion yuan into Hong Kong through southbound trades in June.
With a significant amount of RMB flowing into Hong Kong, observers have noticed a large wave of Mainland Chinese restaurants rushing into Hong Kong for business opportunities since the full customs clearance between China and Hong Kong in early 2023.
According to the Food and Environmental Hygiene Department and online data, since the full customs clearance, at least 42 Mainland Chinese restaurants and tea shops have opened in Hong Kong, with over 100 branches under popular brand names and influencer-favored stores.
Based on InvestHK data, the agency assisted 136 Mainland Chinese companies in opening or expanding businesses in Hong Kong in 2023. These include the Tai Er Group, which opened four specialized sour fish hot pot stores last year and this year introduced barbecue, coconut desserts, and noodle shops.
Most of these Mainland stores are concentrated in busy areas, focusing on tea drinks and Sichuan cuisine, such as grilled fish, sour fish hot pot, and spicy hot pot. There are also popular dishes from Mainland China like Northeastern style skewers, snail noodles, and lamb noodle soup. There are 30 handmade lemon tea shops, 17 Sichuan restaurants, and 15 other bubble tea shops. Additionally, there are various Chinese cuisines, hot pot, Korean barbecue, coffee, and dessert shops of different kinds.
Notably, many Mainland Chinese restaurants have been found to close soon after opening.
The Mainland fast-food chain “Luobo Xiangnan” located on Dundas Street in Mong Kok recently ceased operations according to online sources. A search for “Luobo Xiangnan” online showed that the branch in Dundas Square in Mong Kok has been “permanently closed.”
Records show that “Luobo Xiangnan” specializes in Xiangxi cuisine and has branches in Shenzhen. It signed a lease for 250,000 Hong Kong dollars per month at Dundas Square in Mong Kok in December last year and commenced operations in February this year, only to close after four months.
Additionally, the 27-year-old snack shop “Gulu Meatball House” in Guangzhou, aimed at promoting Cantonese tea culture, with over 500 chain stores across 15 provinces and 50 cities nationwide, entered a lease agreement for approximately 60,000 Hong Kong dollars per month in Yau Ma Tei Nathan Road last September. Less than a year later, it closed; the landlord re-leased the property at the end of April.
“The Zesty Lemon Handmade Perfume Lemon Tea” rented a space in Heng Lung Building on Nathan Road in Mong Kok for 70,000 Hong Kong dollars per month last year. After opening in June last year with moderate business, the shop had a lease term until April 2025 but started seeking new tenants at 50,000 Hong Kong dollars per month in January and recently closed its doors.
Veteran financial media personality Yan Baogang told The Epoch Times that the whirlwind entry and swift exits of Mainland retail and restaurant businesses in Hong Kong indicate the short and fast-paced operating style of Mainland companies, which may not resonate well with local preferences. Facing significantly higher rents and labor costs in Hong Kong compared to the mainland, profitability could be challenging, leading to a quick decision to cut losses and exit the market.
However, Yan Baogang also pointed out that amidst the tightening measures on capital outflow by the Chinese authorities, this could also be a way for Mainland companies to move capital through this means.
He said, “The capital already withdrawn overseas is unlikely to return to the mainland, presenting a potential covert method of capital flight, with such considerations in play.”
Ji Da mentioned that on the surface, Hong Kong still maintains free exchange, making it easy to transfer cash out through opening restaurants and retail businesses.