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China steps up capital controls to stem outflows

  • Author:naky
  • Source:www.diecastingpartsupplier.com
  • Release on:2016-01-15
China is ratcheting up ad hoc capital controls to stem accelerating capital outflows, with banks restricting dollar purchases amid fierce demand from households and companies.

The foreign exchange regulator has provided verbal guidance to banks in Shenzhen instructing them to limit dollar buying by individual and corporate clients, according to a person with knowledge of the situation.

The official Shanghai Securities News cited client managers at banks in Shenzhen including Industrial and Commercial Bank of China and Bank of China as saying that demand for US and Hong Kong dollars had increased sharply since the start of the year. Chinese residents are permitted to buy up to $50,000 annually, with the quota resetting at the beginning of the calendar year.

China’s foreign exchange reserves declined by a record $108bn in December, a sign of accelerating capital outflow and the central bank’s spending to support the renminbi exchange rate.

The latest tightening comes after the central bank temporarily suspended some foreign banks in China, including Standard Chartered, Deutsche Bank and Singapore’s DBS, from conducting certain foreign exchange transactions designed to arbitrage the gap between the onshore and offshore renminbi exchange rates. All three banks declined to comment.

Until the renminbi’s trading range was widened in 2014, appreciation was virtually uninterrupted. But Chinese households are now more eager to sell their renminbi and diversify their currency holdings.

At a mid-sized bank in Shanghai, customers are restricted to buying $5,000 in foreign exchange per day unless they make an appointment in advance and $10,000 per day if they do, with no more than three appointments allowed per week, the paper reported.

A Beijing-based finance executive said SAFE had been in “regular discussions” with foreign banks over the past month. “They are basically trying to make sure that banks are not helping speculators with leverage,” the executive said. “If your client needs three months’ trade finance but borrows one or two years’ worth of forex, is that legitimate hedging?”

SAFE did not immediately respond to a fax requesting comment on Friday afternoon.
Additional reporting by Martin Arnold in London