New rules to help curb spec­u­la­tive out­flow of yuan

China Daily (USA) - - TOP NEWS - By WANG YANFEI wangyan­fei@chi­nadaily.com.cn

The cen­tral bank has drawn up new guide­lines to strengthen inspections of do­mes­tic com­pa­nies that make yuan loans over­seas, the lat­est move to curb spec­u­la­tive shift­ing of yuan amid short-term de­pre­ci­a­tion pres­sure, a source with the bank said on Thurs­day.

Lenders must reg­is­ter with lo­cal for­eign exchange reg­u­la­tive bod­ies in China be­fore is­su­ing loans over­seas, and the amount of the loans should not ex­ceed 30 per­cent of net as­sets of the lender, ac­cord­ing to the source, who re­quested anonymity.

The guide­line is among many meth­ods that the cen­tral bank could use to en­hance man­age­ment of spec­u­la­tive cap­i­tal flow, the source said.

Sun Haibo, CEO of Shang­hai-based Faxun Fi­nan­cial Reg­u­la­tion and Law Co, a fi­nan­cial law con­sult­ing com­pany, said that im­ple­men­ta­tion of the guide­line “will be the first time that the cen­tral bank has set up a ceil­ing amount for yuan-de­nom­i­nated loans that lenders are al­lowed to is­sue over­seas.”

The cen­tral bank has be­come aware of the risks brought by spec­u­la­tive be­hav­ior through mov­ing yuan out of the coun­try, Sun added.

“Is­su­ing loans over­seas is a rather sim­ple way to move money out com­pared with other meth­ods, with no ap­proval pro­ce­dures re­quired to go through from the na­tion’s for­eign exchange reg­u­la­tor,” said Sun.

A Mor­gan Stan­ley re­port re­leased on Tues­day said that cross-bor­der yuan flows picked up strongly to an av­er­age of $28 bil­lion per month through Oc­to­ber this year, ac­count­ing for half of the to­tal out­flows, in con­trast with de­clin­ing off­shore yuan de­posits.

That means that yuan flow­ing to for­eign coun­tries have been con­verted to for­eign cur­ren­cies rather than pro­mot­ing the use of yuan off­shore, the re­port said.

Wang Youxin, an econ­o­mist at the In­sti­tute of In­ter­na­tional Fi­nance of the Bank of China, said that the new rules would not af­fect bor­row­ers in for­eign coun­tries, as long as they have le­git­i­mate needs.

“The cen­tral bank is not im­pos­ing a new cap, only en­hanc­ing reg­u­la­tions,” said Wang.

Robin Xing, chief China econ­o­mist with Mor­gan Stan­ley, said he fore­sees reg­u­la­tive bod­ies in­tro­duc­ing more mea­sures to reg­u­late cap­i­tal out­flows if the United States Fed­eral Re­serve in­creases rates, keep­ing cap­i­tal out­flow pres­sures alive.

Wang said cap­i­tal out­flows tend to sta­bi­lize with such stricter inspections, which in turn im­proves in­vestors’ long-term out­look for the Chi­nese economy.

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