China cracks down on outflows

CHINA was stepping up measures to stem capital outflows after the yuan currency skidded to more than eight-year lows, sources said yesterday, taking aim at outbound investments that had soared to a record high.

The State Administration of Foreign Exchange (Safe) had begun vetting transfers abroad worth $5 million (R69m) or more and was stepping up scrutiny of major outbound deals, including those with prior approval, sources with knowledge of the new rules said.

Capital outflows through both legal and illegal channels have added pressure on the yuan. The currency has depreciated almost 6 percent against a strong dollar so far this year and many traders are betting on further losses, raising the spectre of more capital flight.

The new rules would apply to transfers abroad under the capital account for transactions, such as portfolio or foreign direct investment, and could knock some momentum from China’s overseas asset shopping spree, analysts said.

Chinese outbound investment transactions totalled $530.9 billion in the first nine months of 2016, surpassing last year’s record volume and helping China outstrip the US as the top acquirer for foreign companies, according to Thomson Reuters data.

“The new rules will have a very big impact on outbound deals,” said Luke Zhang, a partner at Zhong Lun Law Firm.

“Previously, only for exchange transfers worth $50m or more needed to be reported to Safe. Now, the threshold has been drastically lowered to $5m, and covers both foreign currency and yuan,” said one of the sources with direct knowledge of the rules.