Uncertainty surrounds impact from new Chinese rules on currency transfers

Beef Central, 22/02/2017

IT’S not yet clear whether recent Chinese regulatory changes over international monetary transfers will have any short or longer term impact on foreign investment in the Australian cattle property sector.

In early January, China’s State Administration of Foreign Exchange (SAFE) issued a statement that effectively imposes new restrictions on Chinese individuals and companies wanting to transfer money abroad.

Starting in July 2017, banks and other financial institutions in China will have to report all domestic and overseas cash transactions worth more than 50,000 yuan, compared with 200,000 yuan previously, the central bank said.

Banks will also need to report any overseas transfers by individuals of $10,000 or more.

China’s new rules on overseas currency transfers were not capital controls, the official Xinhua news agency recently reported, even as some Chinese banks told customers that purchases of foreign currency for property, securities and life insurance were not allowed.

Capital outflows have been a growing concern for the Chinese government in the past year as it attempted to put the economy back on track and keep the currency stable without exhausting its foreign exchange reserves, which tumbled to $3.052 trillion in November, the lowest in almost six years.

The responsibility of reporting transactions above the new threshold will fall to financial institutions, and there will also be no extra documentation or official approval procedures required for companies or individuals, Xinhua news agency reported.

The government has said its checks on transactions are meant to target money laundering, terrorism financing and fake outbound investment transactions, and not normal, legitimate business activities.

China’s foreign exchange regulator said it would step up scrutiny on individual foreign currency purchases and strengthen punishment for illegal money outflows.

Regulations allow Chinese nationals a foreign exchange quota of $50,000 a year.

Asian finance consultant and commentator Basis Point is more pessimistic, saying that barring a sea change in China’s economic or political environment, for the next 6 to 12 months Chinese investors may struggle to get money out of China.

“This will impact all sectors that depend on Chinese investment, including real estate,” Basis Point said.

“The statement made by SAFE comes on the heels of months of speculation that currency controls would increase. The changes are less substantive than symbolic, but they will nonetheless have a big impact on money coming out of China,” it said.

“Beijing is signalling to banks, companies and individuals that it disapproves of foreign spending and investment, except for a few purposes that are explicitly defined by the government (for example, buying foreign-made machinery to increase the efficiency of a Chinese factory).

Concerns about debt levels in the Chinese economy contribute to a sense that there are hidden risks that threaten the accumulated wealth of Chinese companies and individuals. This causes more interest in moving capital abroad, creating additional downward pressure on the yuan.

Chinese business leaders and economists have pointed out that such rules and regulations are inevitably a burden on Chinese companies, making them less competitive.




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