REPORT: China is tightening controls to limit capital outflows

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The Chinese yuan has been under the pump in 2016, falling by over 6% against the US dollar and currently sits at an 8-year low.

The decline has prompted some to speculate that it’s being driven by increased capital outflows, mirroring the pattern seen earlier in the year, which resulted in a bout of extreme market turmoil.

Well, it appears that Chinese regulators don’t want a repeat performance, apparently tightening measures to stymie capital outflows, according to Reuters.

“The State Administration of Foreign Exchange (SAFE) has begun vetting transfers abroad worth $5 million or more and is stepping up scrutiny of major outbound deals, including those with prior approval,” it said, citing unnamed sources with knowledge of the new rules.

The sources said that the regulator told banks about the new rules on Monday.

“Previously, only forex transfers worth $50 million or more needed to be reported to SAFE. Now, the threshold has been drastically lowered to $5 million, and covers both foreign currency and yuan,” said one source.

“All we can do is to ask clients to be patient, and tell them that the transaction is being vetted by SAFE for authenticity and may not be approved.”

The restrictions apply to transfers abroad under the capital account, for transactions such as portfolio or foreign direct investment.

Reuters has contacted SAFE for further clarification on the policy change. The regulator has yet to respond.

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