'Gag order' on negative yuan views

Top News | Reuters and Carrie Chen 12 Jan 2017

China's foreign reserve regulator is adopting various measures to curb capital outflow, including wanting banks to advise clients to buy yuan and sell US dollars and ensuring research analysts keep to themselves any negative views on the currency's prospects, several bankers said.

The yuan lost more than 6 percent against the US dollar last year and is at eight-year lows, prompting a flurry of restrictive measures on capital outflows from the State Administration of Foreign Exchange.

These include setting limits on banks' currency volumes in some cities or provinces and requiring approval for even smaller transactions.

The yuan weakened one basis point yesterday to 6.9235 against the US dollar, according to the China Foreign Exchange Trade System.

SAFE's reticence began at least as far back as August, when its Shanghai branch called at least 20 of the major foreign and domestic banks operating in the city to a meeting with the regional heads of several SAFE departments.

"You must control your forex deficit, but you can't say that SAFE is controlling capital outflows," the official told the bankers.

One banker said: "They told us not to publish bad house views - analyst house views - on the yuan."

China's foreign exchange reserves fell to US$3.05 trillion (HK$23.79 trillion) in November from US$3.3 trillion in the first 11 months of 2016, and the market forecasts China's foreign reserves may fall to below US$3 trillion in January. But SAFE wants banks to advise clients to buy yuan and sell dollars, the international bank representative said, a play that is likely to lose clients money.

"It was a rumor currently, but if it's true, the regulator may want the banks to encourage state-owned enterprises to sell their foreign currencies," sai Liao Qun, chief economist and head of research at CITIC Bank International.

"In my view, it's only an encouragement, not a command."

Ken Peng Cheng, investment strategist for the Asia Pacific region at Citi Private Bank, said: "If [regulators] continued to restrict purchasing foreign currency, it may bring unexpected results. Thus, they may force enterprises to sell more foreign currencies."

Citi expects the yuan to fall to 7.05 against the US dollar by year-end.

Meanwhile, the price of the digital currency bitcoin fell by about US$50 yesterday after China's central bank announced the launch of spot investigations on bitcoin exchanges in Beijing and Shanghai to fend off market risks and scrutinize various issues.

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