China: Mainlanders use ‘free money’ from Hong Kong banks to earn higher returns at home

Last Updated: 12 May 2014

Mainland Chinese working in Hong Kong have found a way to use "free money" from local banks to invest in profitable financial products across the border.

They take advantage of cheap personal loans aggressively hawked by banks in an attempt to expand their business. The borrowers quietly turn around and invest the cash on the mainland for higher returns.

Given the big gap in interest rates between Hong Kong, which has a market-based banking system, and the mainland, where the central bank tightly controls loan and deposit rates, it's no surprise that some are able to exploit the opportunity for arbitrage.

One practical difficulty remains, however, for these individual investors – how to transfer the money to the mainland? Sometimes they have to do it illegally. Chinese citizens are legally allowed to transfer up to US$50,000 per year into the mainland. Violators face fines or criminal prosecution.

The annual tax season in Hong Kong provides an opportunity for investors to obtain the cheap cash from local banks in the form of loans ostensibly to help them pay off their taxes.

Robin Wang, a managing director in the Hong Kong office of a major Chinese state-owned enterprise who earns more than HK$2 million a year, faces an eyebrow-knitting tax statement every year.

This year, he learned something new from his friends about how to make profitable use of his tax filing – submit the statement to a local bank and apply for a tax loan at a very low rate, in some cases less than 2 per cent per year.

Wang, who spoke to the South China Morning Post on condition that his real name not be used, said he could borrow up to 10 times his salary from one of the major local banks, although he does not, in fact, need the loan to pay his taxes.

"For me, this means 'free money', so why not?" he said.

Wang said instead of using the loan to pay his tax bill, he transferred the cash – after converting it into yuan – to the mainland through underground money agencies in Sheung Wan.

Once the cash reached his mainland bank account, he could sit back in Hong Kong and place orders online for short-term investments.

These are typically wealth management products, mostly offered by trust companies. They mature in three to six months and offer an annualised return of at least 6 per cent. They are part of the mainland's shadow banking business, the regulation of which has been a growing headache for Beijing.

Wang said that with part of the returns he earns on these investments, he was able to quickly repay the tax loans.

Jiang Rongqing, senior partner at Dacheng Law in Beijing, said the practice carried a number of risks.

"Transferring money through underground banks – this practice is illegal itself, because those banks totally avoid the settlement of exchange," said Jiang. "Also, this transaction is not secure at all."

"The government bureaus often focus on companies conducting illegal transactions but ignore individual practice. If it is a big amount, violators will be subject to criminal charges."

Once the cash gets into the mainland banking system, some investors may also pour the money into the red-hot property market, where they can put a down payment on a flat financed at the cheaper offshore borrowing rates.

In an interview with the Post, a Hong Kong-based mainland business executive, who only wanted to be identified as Mr Su, said he recently made the down payment for his new flat in Zhongshan, Guangdong province, with part of his tax loan from a local bank.

Su said he had the financial strength to repay the loan, since his job paid well.

"I don't see it as a problem for both the Hong Kong and mainland banking system," Su said.

"As a borrower, I will repay my loan to the Hong Kong bank on time. As a property buyer, I make my down payment in cash. No one asks me where the money comes from, and I don't think anyone should ask."

Wang said the availability of low-interest personal loans in Hong Kong is widely known among mainlanders.

"I don't see anything wrong with [borrowing in Hong Kong and investing in the mainland]. This is what we are entitled to, because this is how the two different systems work," Wang said.

"The only risk may happen in the money transfer process, given the dodgy nature of those underground banks, but if you think about the low-rate loans you can get in Hong Kong, it is too compelling [an opportunity to ignore]."

Customer service staff at major Hong Kong banks from HSBC to Bank of East Asia said they were aware of the loophole and that some of those taking out tax loans might not really use the money to pay their taxes. But they said the banks have no control over how the borrowers spend their money.

For the 2013/2014 tax year, many banks started promoting tax loans in October, with a monthly flat rate ranging from 0.12 per cent to 0.17 per cent.

After taking into account all fees and promotional discounts, a borrower usually pays an annualised interest rate of 1.7-2.6 per cent.

The larger the loan a borrower applies for, the lower the interest rate. For example, HSBC charges 1.7 per cent interest for smaller tax loans, but if the amount exceeds HK$100,000, the rate drops to 1.4 per cent.

On the mainland, the benchmark interest rate set by the People's Bank of China, the central bank, is 6 per cent for one-year loans. It rises to 6.55 per cent for loans of more than five years.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.