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As the Chinese government grapples with the ripple effects of a plummeting property market, wealthy Chinese citizens are accelerating moves to safeguard their wealth by investing abroad, Nikkei reports.

Chinese President Xi Jinping's economic policies are helping to lift property values in Japan, especially in the Niseko area of Hokkaido, left, and in Osaka's Dotonbori entertainment district. (Nikkei montage/Source photos by Ken Kobayashi, Yusuke Hinata, and Yo Inoue)

Notably, older Chinese, weathered by the harsh realities of the Cultural Revolution, are leveraging technology and international markets to insulate their assets from domestic economic shocks. Their destination? Japan's burgeoning real estate sector.

"Chinese people are buying up property in Japan so casually as if they were buying a cheap car or something," one Osaka realtor said recently.

This exodus of capital has not gone unnoticed. President Xi Jinping finds himself in a quandary, caught between the 10th anniversary celebrations of the Belt and Road Initiative and a flood of capital flight by China's affluent class. The spotlight fell on this economic undercurrent with the recent arrest of two Chinese nationals in Hokkaido, Japan, underscoring the intricate web of unofficial money transfers from China to Japan.

These transfers, often facilitated through smartphone applications such as Alipay, have opened a Pandora’s box of illegal banking activities, pushing the boundaries of Japan's financial regulations. The two arrested nationals allegedly orchestrated unlicensed payments totaling approximately 260,000 yuan ($35,000), a violation of Japan's stringent banking laws.

Alipay and other smartphone apps can make it easy to transfer money across borders, but doing so isn't always legal.   © Reuters

"Agents residing in Japan could be using apps like Alipay to transfer minpaku revenue or real estate transaction referral fees to people in China," said one property industry rep in Japan's Kanto region, which includes Tokyo.

What's driving all this? Decaying confidence in China's property sector – as Beijing's once-meteoric housing market has begun to implode, instilling a sense of urgency among property owners to liquidize their assets in favor of more stable investments abroad. The depreciating yen amplifies Japan's appeal, offering cost-effective investment opportunities for Chinese investors.

A property construction boom driven by foreign capital including from China and Hong Kong is ongoing in the Hirafu-zaka area of Niseko, Hokkaido. (Photo by Katsuji Nakazawa)  

Another reason is that rich Chinese can open a path to long-term residency in Japan. Foreign nationals who seek permanent residency can reside in the country under a business manager visa by 'running or managing a business,' as one option.

Consequences?

While Beijing grapples with potential social unrest stemming from economic instability and surging youth unemployment, the property slump appears to be an unsolvable puzzle, at least for now. Macroeconomic projections by Chinese executives and businesspeople are pessimistic at best, foreseeing further depreciation in housing prices.

That said, stringent Chinese regulations on overseas investments and currency export present obstacles, sometimes leading to illegal workarounds and "underground banking" solutions. Despite these challenges, the influx of Chinese capital is significantly influencing property values in these Japanese regions, a trend expected to persist until there is a substantial recovery in China's property market.

In short, the flight of capital from China to Japan is an unintended offshoot of Beijing's economic strategies, creating ripples in international real estate markets and potentially altering the economic landscapes of both nations.