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China's FX regulator announces latest steps to keep cash at home

Thursday, January 26, 2017 - 21:50

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China's foreign exchange regulator has announced measures aimed at luring money back to the country or keeping it there in the latest effort to stem capital outflows and bolster a weakening currency.

[SHANGHAI] China's foreign exchange regulator has announced measures aimed at luring money back to the country or keeping it there in the latest effort to stem capital outflows and bolster a weakening currency.

The State Administration of Foreign Exchange (Safe) asked companies with outbound investment plans to clarify the source of their funding for purchases and give additional details on their spending plans. That increased scrutiny comes as a record global shopping spree last year by Chinese firms abroad contributed to an exodus of capital.

Safe said in a statement late Thursday it will also require companies to provide materials including tax documents, financial statements and board resolutions to banks if they plan to remit more than US$50,000 in profits from direct investments in China back to their countries.

Authorities have tightened the screws on many outflow channels as the yuan's 6.5 per cent decline against the US dollar last year spurred savers, companies and speculators to shift funds offshore. With the US Federal Reserve on a tightening path - potentially adding to outflow pressures - policy makers in the world's second-biggest economy are seeking to ensure that growth isn't derailed in the process.

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The measures aim "to plug the loophole in capital outflow on the corporate side," according to Ken Cheung, a Hong Kong-based currency strategist at Mizuho Bank Ltd.

Safe said it will allow repatriation of offshore loans secured by domestic guarantees - a move that could allow companies that borrowed abroad to bring more cash back to China.

"This shows that the Chinese government is encouraging more inflows while tightening regulation to curb capital outflow, a main policy theme currently," said Tommy Xie, an economist at OCBC Bank in Singapore.

The regulator will also allow settlement of foreign exchange loans for transactions related to cargo trade, which may allow more foreign loans to be convertible in to yuan.

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