China introduces new measures to stem capital outflow
(27 January 2016 – China) In its latest effort to stem capital outflows and bolster a weakening currency China’s foreign exchange regulator has revealed additional rules to keep money within the country.
The State Administration of Foreign Exchange (SAFE) has requested that companies with outbound investment plans to clarify the source of their funding for purchases and provide additional details on their spending plans.
In a statement, the regulator said it will also require companies to provide tax documents, financial statements and board resolutions to banks if they plan to remit more than US$50,000 in profits from direct investments in China back to their countries.
Chinese authorities have tightened the screws on currency outflow channels as the yuan’s 6.5 percent decline against the US dollar in 2016 prompted savers, companies and speculators to shift funds offshore. With the US Federal Reserve on a tightening path -- potentially adding to outflow pressures -- policy makers in the world’s second-biggest economy are seeking to ensure that growth isn’t derailed in the process.
SAFE said it will allow repatriation of offshore loans secured by domestic guarantees -- a move that could allow companies that borrowed abroad to bring more cash back to China.
The regulator will also allow settlement of foreign exchange loans for transactions related to cargo trade, which may allow more foreign loans to be convertible in to yuan.
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