China to plan looser lim­its on for­eign fund out­flows

The Pak Banker - - COMPANIES/BOSS -

China's cen­tral bank plans to loosen rules de­ter­min­ing when for­eign in­vestors can bring money in and out of the coun­try, ac­cord­ing to peo­ple with di­rect knowl­edge of the mat­ter.

The rule changes would ap­ply to funds un­der the Qual­i­fied For­eign In­sti­tu­tional In­vestor pro­gram, which grants quo­tas for money brought into China for in­vest­ment in do­mes­tic stocks and bonds, ac­cord­ing to the peo­ple, who asked not to be iden­ti­fied be­cause the plans have yet to be an­nounced. Lock-up pe­ri­ods for the with­drawal of QFII funds from China would be re­laxed and in­sti­tu­tions would get more lat­i­tude over when they can bring money into the coun­try, they said.

Such changes would sug­gest that tur­moil in China's stock mar­ket and the yuan's ex­change rate haven't de­railed plans by the Peo­ple's Bank of China to fur­ther open the na­tion's cap­i­tal ac­count. The peo­ple who spoke about the plans to loosen con­trols on QFII funds de­scribed them as part of ef­forts to fur­ther open China's cap­i­tal mar­kets.

"I'm sur­prised by the move as the mar­ket is cur­rently ex­pect­ing the PBOC to tighten con­trols to stem out­flows," said Ed­die Che­ung, a Hong Kong-based cur­rency strate­gist at Stan­dard Char­tered Plc. "If this rule is im­ple­mented, more funds will leave China in the near term, given the frag­ile sen­ti­ment. But in the long term, this could be ben­e­fi­cial and en­cour­age more for­eign in­sti­tu­tions to in­vest in China."

In the past two months, au­thor­i­ties have taken steps to strengthen con­trols on the move­ment of money out of China as slow­ing eco­nomic growth and a de­pre­ci­at­ing cur­rency con­trib­uted to cap­i­tal leav­ing the coun­try. Out­flows jumped to $1 tril­lion last year, Bloomberg es­ti­mates in­di­cate, while cen­tral bank data showed for­eign ex­change re­serves shrank by $513 bil­lion.

Mea­sures to clamp down on out­flows have in­cluded greater scru­tiny of trans­fers by in­di­vid­u­als and lim­its how quickly com­pa­nies can buy for­eign ex­change in or­der to make pay­ments for goods. China's for­eign ex­change reg­u­la­tor also tight­ened re­stric­tions on pur­chases of over­seas in­sur­ance prod­ucts us­ing UnionPay bank cards, peo­ple with knowl­edge of the mat­ter said yes­ter­day.

As of last month, China had ap­proved $80.8 bil­lion of QFII quo­tas and an­other 469.8 bil­lion yuan ($71.4 bil­lion) of quo­tas for the Ren­minbi Qual­i­fied For­eign In­sti­tu­tional In­vestor pro­gram, which al­lows in­sti­tu­tions to raise yuan over­seas for in­vest­ment in China. The planned changes would bring rules for QFII funds in line with those un­der the RQFII pro­gram, one per­son said.

An­nounce­ment of the changes is pend­ing fi­nal ap­proval of the plan by se­nior Chi­nese lead­ers, the peo­ple said. The Peo­ple's Bank of China didn't im­me­di­ate- ly re­spond to a faxed re­quest seek­ing com­ment.

Un­der the planned changes, QFII funds would be al­lowed to with­draw money from China on a daily ba­sis, one per­son said. They're cur­rently sub­ject to lock-ups of ei­ther one week or one month, de­pend­ing on the type of quota.

In­sti­tu­tions would also be al­lowed to bring in por­tions of their QFII quo­tas at dif­fer­ent times, the per­son said. They are cur­rently given spe­cific QFII quo­tas and only al­lowed to bring in an amount equal to that quota in a sin­gle trans­ac­tion.

"If for­eign en­ti­ties want to move their funds out, they'll do it no mat­ter if they can do it once a month or ev­ery­day," said Tommy Xie, a Sin­ga­pore-based econ­o­mist at Oversea-Chi­nese Bank­ing Corp. "The top pri­or­ity for pol­icy mak­ers now is to pre­vent Chi­nese in­di­vid­u­als and cor­po­rates, who are quite pes­simistic about the yuan, from send­ing cap­i­tal out of the main­land."

In Bei­jing Wed­nes­day, the head of China's eco­nomic plan­ning agency told re­porters at a briefing that China has set a range of 6.5 per­cent to 7 per­cent for eco­nomic growth this year. While down­ward pres­sure on the econ­omy is "rel­a­tively big" in the first quar­ter, China can meet that goal, said Na­tional De­vel­op­ment and Re­form Com­mis­sion Chair­man Xu Shaoshi. The world's se­cond- largest econ­omy posted an an­nual growth rate of 6.9 per­cent last year, the slow­est pace since 1990.

Fed­eral Min­is­ter for Com­merce, Khur­ram Dast­gir Khan with the Am­bas­sadors of D-8 Coun­tries.

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