US dollar (right) vs Chinese RMB

Thirty years ago, Yabaolu was the most prosperous black market for foreign currency exchange trade in Beijing. However, around 10 years ago, after a series of reforms on foreign exchange rate, many foreign currency scalpers dropped their business and the place became a marketplace for Russian export-import businesses, with lots of shops hanging signage written in Russian. But the boom in ecommerce has led to a rapid decline in customers for these businesses.

Yu, in his 50s, has been trading US dollars here since the beginning of the 1990s until the first few years of the 2000s when China’s economy began to take off and the yuan was revalued. Now, Yu is doing the business again as there are signs that the yuan will continue to decline while the US dollar will get stronger.

The 1990s

Yu used to work for a stated-owned textile company until 1986 when he quit and began to do socks business. Yu who regards himself as one of the first people to do private business after the reform and opening-up policy likes to share his story with his “customers.”

Yu’s business was tepid in the beginning of the 1990s when China’s stock market was undergoing ups and downs, and the housing market had just begun to warm up. In 1992, the economy saw a rapid growth and the consumption price drastically increased. Official data shows that the Consumer Price Index (CPI) increased by 10% in 1992.

The year also saw a drop in the yuan, with official data showing that the yuan dropped to 5.8 per dollar.

“What was happening then is very similar to the current situation,” Yu recalled, adding that the yuan had been declining quietly over those years.

Yu said when he started his business in 1986, the exchange rate was 3 yuan per dollar, while toward the end of the 1980s, with an increase in the number of students studying abroad and immigrants, the supply of the US dollar was not able to keep pace with demand. And the value of the US dollar nearly doubled in the 7 years.

The year 1994 was a turning point for Yu, as China unified its dual exchange rates by aligning official and swap center rates, officially devaluing the yuan by 33 percent overnight to 8.7 to the dollar.

Just as Trump blamed China as a “currency manipulator” during his campaign, the US government also condemned China as manipulator of exchange rate at that time. In response, China took a “controllable floating exchange rate regime” which allowed yuan to float on the market in a limited range stipulated by the government.

Yu who once planned to immigrate to America but was stopped by the Gold Adventure incident said he then sold his $4,000 which was converted to 45,000 yuan. That brought a lot of profit to Yu and he left the socks business for the dollar trade.

“There were not so many skyscrapers like today, but there were much more people. No matter who said ‘I have dollar,’ he or she will be crowded by a group of people,” Yu recalled referring to Yabaolu.

Hard time

Connecting the Forbidden City and Ritan Park in Beijing, Yabaolu (or Yaobao road) also neighbors over 40 embassies in Beijing, which is why Yaobaolu has also been regarded as the frontier of Beijing’s reform and opening-up, with many vendors selling textiles and other commodities brought from China’s coastal provinces like Zhejiang and Guangdong to expats living in the area.

And the deal was made in US dollars, as the vendors knew it would be much more profitable than dealing in yuan, which gradually turned the 500-meter-long street into the earliest black market for foreign currency exchange in Beijing.

Yu said, everyone on Yabaolu used to see “big money”, and had a story. But he also said making money by trading currency is painstaking. “Sometimes you made as much as hundreds of thousands of yuan in a year, but sometimes you almost earned nothing in those years,” Yu said, “You have to protect yourself from the government supervision, while paying close attention to the national policy on exchange rate.” If the official exchange rate is stable, the government will increase the supply of foreign currency, and there will be less benefit for their business.

The hardest time for “yellow bulls” like Yu who lurks outside the banks in pursuit of currency trade came in October 2002 when Chinese banks together raised the buying price of foreign currency, which encouraged border business traders to sell US dollars to the banks instead of the individual “yellow bulls”.

With US dollars losing favor in China during that period, Yu decided to withdraw from the business. Yu said he was lucky because he was able to catch every right opportunity, while some of his colleagues who made the wrong judgment even fell into bankruptcy.

Return of yellow bulls

Yu decided to restart in November last year, after noticing that the yuan devalued by 4% to the US dollar. When he went back to Yabaolu, he saw some of those who he used to work with a decade ago also resuming their work.

October 2015 to the New Year of 2016 was a busy period of currency exchange business for Chinese banks. In January this year, with the yuan devalued a few times, the price of one dollar in the underground market was 0.5 yuan higher than that in the banks.

“It is more expensive now,” Yu said, “And it would be better if you have a bank account of HSBC.” Asked the price of the current US dollar, Yu said it will be more than 7 yuan for a dollar and nearly 8 yuan for a dollar in cash.

“If you don’t want too much, you’d better go to the other side of road,” said Yu, pointing at the Construction Bank.

According to regulations in China, the maximum sum of currency exchange per person is $50,000 every year and $10,000 every day, while Yu said he didn’t accept a deal of less than $100,000.

In fact, besides Yabaolu, “yellow bulls” are also conducting their business on China’s social media platforms, for example QQ, an online chatting tool owned by China’s tech giant Tencent.

In a 500-member group chatting room called “RMB foreign currency exchange,” there are users saying they want to offer high price to buy US dollars all the time. Emily, the manager of the chatting group, said the bid-offer spread of US dollar in China’s bank system is 3 yuan to $100, and the 3 yuan is where they can “grab the chance.”

Like Yu, Emily said they also only accept a deal when it is over $100,000, but the ceiling is $5 million each day.

Emily said they ask the customers to have an HSBC bank account, and then they will “do the transfer transaction face to face.” This means as a middleman, they will help to transfer the US dollars to the customer’s overseas account, and then transfer the customer’s RMB to his or her another domestic account in his or her country.

According to Emily, although such a way guarantees that there is no record of cross-border transactions, so that it can hardly be detected by the government, the Chinese government is now working with Hong Kong banks to deal with such kind of capital flows, and so far, only HSBC can do it.

(This article is translated and edited by Chunmei.)