China to plan looser limits on foreign fund outflows
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.