Why? Since many of the Chinese middle income purchasers are looking to move their families out of the China while the breadwinner stays in China to run the business (if you are high wealth, you can hire people to run the business but middle income can't), additional funds are usually transferred from China to Canada for the normal family expenses - ie. cars, food, school... According to studies in the past few years, there are many neighbourhoods in Richmond and certain other parts of the Lower Mainland (Vancouver and Burnaby mainly) which have a high concentration of owners who have 'no appreciable' income and qualify for free government services living in multi-million dollar homes. Most of these owners are probably the families of those Chinese middle income purchasers. With the Chinese government cracking down on these money transfers, the families won't have the money to stay where they are as they are dependent on those money flows from China.
Here are a few highlights from the article:
Now, authorities in China are taking new steps to bar individuals from putting their cash into overseas markets to buy homes and other investments, a change with important implications for cities such as Vancouver and Toronto where Chinese buyers had contributed to frenzied property trading.
Under the new regime, the number of buyers will “drop sharply,” said Andy Xie, a China economist formerly with Morgan Stanley.
Those selling homes to Chinese buyers should brace for their “business to shrink dramatically,” he warned.
People in China, who can normally only convert $50,000 (U.S.) a year in foreign currency, have long been technically barred from buying property overseas, but those rules have not been rigorously enforced.
At the outset of 2017, however, China imposed a series of new documentation requirements on currency transactions and punishments for using money in ways the rules don’t allow.
Before, changing yuan into loonies could be done with the tap of a smartphone screen. Now, banks have begun requiring paperwork that entails submitting for approval the reason a person wants to obtain foreign currency and when it will be used. A new rule then holds people liable for what they do with that money – and could bar them from exchanging money for up to three years if they are found to have used it improperly, such as for the purchase of a home.
The rich, with corporate assets and access to sophisticated market tools for stealthily routing money around the world, are unlikely to feel much difference from the change.
But for the middle class, which has become an important force in property markets in places such as Canada, the United States and Australia, “it will have a big impact,” Mr. Xie said.
Families that once bundled together converted currency to buy condominiums and modest houses abroad will face new inspection of their currency conversions and new risks to falling afoul of the rules.
Mr. Xie expects many to simply abandon the idea, particularly since the rules also give banks much more latitude to simply deny transactions. He expects authorities to give banks quotas, in a bid to keep the country’s foreign reserves from dipping below $3-trillion, a line Beijing does not want to cross, he said. In November, China’s foreign reserves stood just $50-billion from that mark.
The new currency rules could even motivate more Chinese buying by making “people more worried about the security of their assets and more eager to move them overseas,” said Anne Stevenson-Yang, co-founder of investment advisory J Capital Research.
Chinese investors tend to be nimble in finding ways around new rules, too. “It takes about a month before people find the next channel,” Ms. Stevenson-Yang said.
What China is doing with capital controls is similar to its successful management of the Internet. Access to censored websites “is not impossible from China, but it’s just a big hassle, and because it’s a hassle, very few people manage to do it on a regular basis,” said Victor Shih, who specializes in Chinese fiscal policy at the University of California, San Diego.
The goal with currency conversion restrictions “is exactly the same – to create enough friction to deter the vast majority of people from converting sizable amounts of money,” he said.