China will stick to ‘go­ing out’ strat­egy amid out­flow

Out­flow en­cour­ages healthy out­bound in­vest­ment

Kuwait Times - - BUSINESS -

China said yes­ter­day it will stick to its open­ing up pol­icy and “go­ing out” strat­egy on in­vest­ment even while a slide in the yuan to 8-1/2-year lows re­vives wor­ries about cap­i­tal flee­ing the coun­try. Of­fi­cials from the Na­tional De­vel­op­ment and Re­form Com­mis­sion, the Min­istry of Com­merce, the Peo­ple’s Bank of China and the State Ad­min­is­tra­tion of For­eign Ex­change said the coun­try will con­tinue to en­cour­age healthy de­vel­op­ment of out­bound in­vest­ment, the of­fi­cial Xin­hua news agency re­ported.

The Wall Street Jour­nal re­ported on Fri­day that China plans to tighten con­trols on com­pa­nies look­ing to in­vest abroad in an ef­fort to slow surg­ing out­flows. While Bei­jing has been busily damming up of­fi­cial chan­nels for money to leave China, more funds than ever are leak­ing out through shady means as in­vestors flee the coun­try’s slow­ing econ­omy and weak­en­ing cur­rency, fi­nan­cial in­dus­try ex­ec­u­tives say.

The on­shore yuan strength­ened to 6.9024 per dol­lar by mid­day from Fri­day’s clos­ing price of 6.9170, with traders say­ing state-owned banks were seen sell­ing dol­lars. The yuan has fallen more than 6 per­cent ver­sus the dol­lar this year, but has been rel­a­tively sta­ble against a bas­ket of cur­ren­cies. The surge in over­seas in­vest­ment height­ens for­eign ex­change risks but also poses po­ten­tial threats to China’s fi­nan­cial sys­tem if these deals start to go bad, an­a­lysts at China In­ter­na­tional Cap­i­tal Cor­po­ra­tion said in a note yes­ter­day.

“Emerg­ing mar­kets’ ex­pe­ri­ence has re­peat­edly shown that one-way cur­rency bets, on ap­pre­ci­a­tion or de­pre­ci­a­tion, tend to be fol­lowed by sub­stan­tial losses to lo­cal fi­nan­cial in­sti­tu­tions,” CICC an­a­lysts wrote. “In other words, reck­less over­seas in­vest­ment could threaten fi­nan­cial sta­bil­ity.”

Though still the world’s largest, China’s for­eign cur­rency re­serves have fallen to their low­est since March 2011, with the PBOC widely be­lieved to have sold dol­lars to cush­ion the yuan’s de­cline.

Pres­sure on the yuan and other emerg­ing mar­ket cur­ren­cies has in­ten­si­fied in re­cent weeks as the dol­lar surged on ex­pec­ta­tions that US Pres­i­dent-elect Don­ald Trump will ramp up fis­cal spend­ing to boost the econ­omy. China’s cen­tral bank has urged com­mer­cial banks in Shang­hai to guard against money out­flows via the Shang­hai Free Trade Zone (FTZ) dis­guised as for­eign in­vest­ment, two sources with knowl­edge of the in­struc­tions said on Fri­day.

The cen­tral bank said it was un­able to comment on re­ports of tighter con­trols on over­seas in­vest­ments. Fi­nan­cial news out­let Caixin re­ported on Satur­day the PBOC is also con­sid­er­ing in­clud­ing cross-bor­der yuan busi­ness into risk as­sess­ments for banks, quot­ing an uniden­ti­fied banker as say­ing the move would force banks to “do more in­com­ing yuan busi­ness, and less yuan out­flow ac­tiv­i­ties”.

In com­ments on Sun­day, PBOC Vice Gov­er­nor Yi Gang pre­dicted that cap­i­tal out­flows seen af­ter Au­gust 2015’s sur­prise de­val­u­a­tion of the cur­rency would start to re­verse.

“As China’s econ­omy re­cov­ers and in­sti­tu­tional re­form im­proves the busi­ness en­vi­ron­ment, the money that has left will come back,” Yi said. — Reuters

DHAR­MANA­GAR: The rail­way sta­tion is de­serted dur­ing the ‘Bharat Bandh’ - na­tion­wide strike - called by the Com­mu­nist Party of In­dia (Marx­ist), CPI(M) party, in Dhar­mana­gar, in north-east­ern Tripura state yes­ter­day.—AFP

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