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SAFE denies reports on capital restrictions
http://www.ecns.cn/business/2016/01-29/197510.shtml
Jan 29th 2016, 08:43
'No change' in policy on remittances, regulator says
China's foreign exchange regulator on Thursday denied media reports about official efforts to restrict foreign companies in the country from remitting earnings back home.
"Some media reports said that China would curb the repatriation of profits by foreign companies in China, which is not true. There is no change in the relevant policies," the State Administration of Foreign Exchange (SAFE) said on its Sina Weibo Thursday morning.
Currently, foreign companies operating in China can remit profits to their home countries by following the normal procedures and provisions, the regulator noted.
The clarification came in response to a report by The Wall Street Journal on Wednesday, which said that China is stepping up efforts to restrain outflows of funds.
The measures Chinese authorities are planning but haven't publicly disclosed include "curbing the ability of foreign companies in China to repatriate earnings, shrinking the pool of Chinese yuan available for banks in Hong Kong to make loans, and banning yuan-based funds for overseas investment," the report said, citing unnamed sources.
China's foreign exchange reserves contracted by a record $108 billion in December 2015, falling to $3.33 trillion, data released by the central bank in January 2016 showed. The country's reserves stood at $3.99 trillion in June 2014, and the figure for 2015 represented the first-ever annual decline in China's foreign exchange reserves.
The December fall in reserves was perceived as one of the reasons behind the fast depreciation in the yuan earlier this month, with some international speculators betting against the currency.
The reserves could fall by as much as $200 billion in January, according to a Reuters report on Monday, citing a strategist from Omni Macro Fund.
But experts said that although China is facing pressure from a slower economy and increased capital outflows, some of the media reports about it have been exaggerated.
"Foreign media reports tend to take extreme views in their reporting on the Chinese economy," Zhou Jingtong, a senior analyst at Bank of China's Institute of International Finance, told the Global Times on Thursday.
"Sure, the Chinese economy is facing downward pressure, but it's certainly not as bad as has been reported," Zhou said.
Given the sluggish economy, weakening yuan and volatile stock market, China is facing intensifying pressure from capital outflows, said Liu Xuezhi, an analyst at Bank of Communications.
The fact that the US dollar has been strengthening following the US Federal Reserve's interest rate hike in December has also contributed to capital outflows from China, Liu told the Global Times on Thursday.
Measures justified
The central bank has taken a number of measures since late 2015 to manage flows of money in and out of the country, which is natural amid the current situation, Liu noted.
On Monday, the central bank started implementing a reserve requirement ratio for offshore banks' domestic deposits, a move widely seen as a way to curb yuan speculation and reduce abnormal money inflows and outflows.
Also, at the end of 2015, the PBC suspended foreign exchange business for some foreign banks, including Deutsche Bank, DBS Bank and Standard Chartered, according to media reports.
However, the fundamental way to prevent capital outflows is to maintain medium to high-speed growth in the Chinese economy, Liu noted. "That way foreign investors would return to China."
In addition, there should be no panic about the capital outflows at the moment because "the risk is still controllable," Liu said, adding that the country's foreign exchange reserves are still high, despite the recent decline.
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