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China said to add curbs on yuan outflows, outbound investments

Wednesday, November 30, 2016 - 16:18
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China added new restrictions on pulling yuan out of the country as authorities seek to prevent a flood of capital outflows from destabilising the financial system.

[BEIJING] China added new restrictions on pulling yuan out of the country as authorities seek to prevent a flood of capital outflows from destabilising the financial system.

Officials won't approve requests to bring the yuan overseas for the purpose of converting it into foreign currencies, unless applicants provide a valid business reason, according to people familiar with measures drafted by the People's Bank of China.

The monetary authority has noticed funds are increasingly leaving the nation denominated in yuan instead of in foreign currencies, according to the people, who asked not to be named because they aren't authorised to disclose the measures.

Goldman Sachs Group Inc flagged last month that China's capital outflows may be worse than the official data suggest, as an increasing amount of funds exit in yuan.

A total of US$275 billion left the nation via yuan payments this year through October, compared with an inflow of US$101.5 billion in the same period of 2015, according to data released by the State Administration of Foreign Exchange. The nation's foreign-exchange reserves, the biggest stockpile in the world, declined by the most since January last month.

"The underlying depreciation pressure on the yuan has picked up enough to cause alarm," said Sean Callow, senior strategist at Westpac Banking Corp in Sydney.

"The PBOC has lots of weapons at its disposal, so they should be able to slow the pace of capital outflows and thus relieve the pressure on the yuan in the short term. But if it is true that new restrictions are being imposed on capital flows, then it is a setback for the long term plan to open up China's financial markets and internationalise the yuan."

China will further standardise companies' yuan-denominated outbound direct investment, strengthen inspections on whether related deals are real, and develop a system for firms to report big cross-border fund movements for ODI in advance, the people said.

The PBOC didn't immediately reply to a fax seeking comments.

BLOOMBERG