Cross-border capital flow curbs eased

Business | 20 Apr 2017

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

The first easing of the measures 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 percent against the dollar last year, but has firmed nearly 1 percent in 2017, defying - for now - many analysts' expectations of further depreciation.

Indeed, a Reuters poll earlier this month indicated investors likely increased their bullish bets on the yuan to the most since July 2015.

With less incentive for capital flight and the economy on steadier footing, China's foreign exchange reserves have clawed back above the closely watched US$3 trillion (HK$23.4 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 is no longer demanding that banks match outflows with equal inflows, the sources said.

Expectations of further yuan depreciation have eased in recent months, opening a window for authorities to relax recent measures, but Beijing is not likely to let go totally, said Raymond Yeung, chief Greater China economist at ANZ in Hong Kong.

In addition to checking exchange rate expectations, the authorities were also using capital controls to control where Chinese money flows, limiting investments in foreign sectors deemed undesirable, he noted.

"The current macro environment obviously favors an easing of the (rules on) fund flows, but that doesn't mean that it is going to have solved the structural issue of the mismatch between the corporate desire to go out versus the central government's centrally-driven approach when they talk about offshore investment," Yeung said.

China 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 stabilize 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.


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