Hot cash flowing in - but is it legal?

Mainland buyers are driving the prices of luxury properties to record highs, a process fuelled by millions of dollars pouring over the border through complex arrangements - some legal, some not.

The yuan is not freely convertible into foreign currency in the absence of approval by the State Administration of Foreign Exchange. And the central government maintains strict controls over individuals converting yuan into foreign currencies, including the Hong Kong dollar. But these limits are easily circumvented by mainlanders eager to buy expensive flats in the city.

Credit card transactions, fund transfers between companies that trade in Hong Kong and the mainland, parallel accounts, the underground banking system, and mobilising friends to smuggle currency - all are used to move money in search of investment opportunities.

Undoubtedly some of these methods breach the mainland's strict foreign currency controls, but it's not always clear.

Under Beijing's individual visit scheme, which began in July 2003, residents are allowed to take no more than 20,000 yuan (HK$22,700) and foreign currency equivalent to US$5,000 in cash with them each time they visit Hong Kong. That comes to about HK$61,500.

In addition to the cash limit, they can also use mainland-issued bank cards to withdraw cash from ATMs in Hong Kong, but the equivalent of no more than 10,000 yuan a day. Moreover, on the mainland people are entitled to buy a maximum of US$50,000 per person per year.

Obviously such amounts are not much use when you need to come up with a down payment for a penthouse in Hong Kong.