Crackdown on UnionPay cards for Hong Kong property purchases

Clare Jim

HONG KONG, March 24 (Reuters) - A leading Hong Kong real

estate agent said on Friday that some banks it works with would

no longer accept payments for property transactions in the city

through China's state-backed UnionPay, the mainland's biggest

bank card provider.

The move is the latest by Chinese authorities to curb waves

of capital outflows that have put pressure on the yuan and

eroded the country's foreign exchange reserves.

"We received notice from the two Hong Kong banks we work

with ... that they will no longer accept payment by UnionPay

cards issued in the mainland," said Sammy Po, chief executive of

the residential department of leading Hong Kong real estate

agent Midland Realty International.

Mainland clients, who account for 5-10 percent of Midland's

new home clients, could still pay with other credit cards or

cash, Po said, adding that he expected the impact to be limited.

Many mainland Chinese use credit cards to pay for a portion

of property transactions in Hong Kong and UnionPay acknowledged

it was scrutinising some purchases.

"Recently, we have carried out investigations on large-sum,

suspicious, cross-border UnionPay card transactions and

reiterated to cooperating institutions the requirement to

strengthen merchant supervision," a spokeswoman for UnionPay

International in Hong Kong told Reuters.

"According to the UnionPay regulations ... it is strictly

prohibited to use a UnionPay card issued in mainland China for

cross-border acquisitions of property."

Capital outflows from China surged last year to a record

$725 billion, the Institute of International Finance said in

February, partly on expectations that the yuan would weaken

against the dollar.

The outflows, which caused a $320 billion decline last year

in Chinese foreign exchange reserves, have prompted authorities

to strengthen capital curbs. The yuan fell 6.5 percent against

the dollar last year, the biggest ever yearly fall.

In October, UnionPay said it would tighten regulations over

how mainland customers could use its debit and credit cards to

purchase Hong Kong insurance products, potentially restricting

yet another gateway for capital flight.

Beijing, which has intensified a crackdown on illegal

outflows this year, is concerned that buying overseas insurance

has become a way for Chinese to skirt restrictions on capital

outflows by disguising investment intentions.

(Additional reporting by Julie Zhu and Sumeet Chatterjee in

HONG KONG, Writing by Anne Marie Roantree, Editing by Mark

Potter)