China relaxes some cross-border capital curbs as yuan steadies: sources

[SHANGHAI] China's central bank has relaxed some of its curbs on cross-border capital outflows put in place just months ago to shore up the yuan currency, banking sources said on Wednesday.

The first loosening of the curbs comes as China's leaders and financial markets feel more confident that pressure on the yuan and the country's foreign exchange reserves has diminished, thanks largely to a pullback in the surging US dollar.

The yuan slumped around 6.5 per cent against the dollar last year, but has firmed nearly 1 per cent in 2017, defying - for now - many analysts' expectations of further depreciation.

With less incentive for capital flight and the economy on steadier footing, the country's foreign exchange reserves have clawed back above the closely watched US$3 trillion level.

Premier Li Keqiang said on Tuesday that market confidence in the yuan has significantly improved, Xinhua news agency reported.

As of last week, the People's Bank of China (PBOC) is no longer demanding that banks match outflows with equal inflows, the sources said.

The South China Morning Post first reported the relaxation of the capital controls earlier on Wednesday.

There was no immediate comment from the People's Bank of China when contacted by Reuters. The State Administration of Foreign Exchange (SAFE) did not have an immediate response to Reuters' questions on the SCMP report.

While the world's second-largest economy still has the largest stash of forex reserves by far, it had burned through over half a trillion dollars since August 2015 trying to support the yuan.

The government reacted by intensifying capital controls late last year, making it harder for individuals and companies to move money out of China.

Those measures are credited with quashing speculative outflows and helping to stabilise the currency, but have also hampered legitimate outflows as China Inc goes more global.

Chinese businesses have complained that the curbs were damaging their plans for overseas investments and acquisitions, while foreign firms have been more reluctant to invest in China for fear of having trouble repatriating profits.

On Tuesday, China reported that its non-financial outbound direct investment (ODI) slumped 30.1 per cent in March from a year earlier as authorities kept a tight grip on outflows. In the first quarter, it fell nearly 49 per cent.

While Beijing says it supports legitimate overseas investment, regulators have warned they would pay close attention to "irrational" investment in property, entertainment, sports and other sectors.

The sources did not spell out what criteria would still be applied to outflows. "Actually, it'll be the same as SAFE's previous policy stance emphasizing that cross-border settlements for legal and compliant business are guaranteed," said one of the sources, who declined to be identified.

While the Federal Reserve is still widely expected to raise interest rates two more times this year, which could revive the drooping dollar against emerging currencies, a string of disappointing US data in recent weeks has reduced prospects of a rate hike until later this year.

REUTERS