China Losing Control? PBOC Imposes New Yuan Outflow Limits For First Time In Two Decades
Late last week, we reported that in its latest push to limit and/or halt capital outflows, China unveiled new capital controls meant to stem further capital flight disguised as outbound M&A by clamping down with tighter controls on Chinese companies seeking to invest overseas, intensifying efforts to slow a surge in capital fleeing offshore amid tepid growth and an uncertain economic outlook. Beijing was said to focus on “extra-large” foreign acquisitions valued at $10 billion or more per deal, property investments by state-owned firms above $1 billion and investments of $1 billion or more by any Chinese company in an overseas entity unrelated to the investor’s core business. The new controls would apply to deals yet to receive approval from China’s top economic planning agency.
It did not end there.
One month after we noted a Bloomberg report that China was preparing to impose curbs on Bitcoin – which has in the recent past become a widely accepted mechanism to bypass capital controls – including policies restricting domestic bitcoin exchanges from moving the cryptocurrency to platforms outside the nation and imposing quotas on the amount of bitcoins that can be sent abroad, overnight we learned that China was taking a page out of the Indian demonetization playbook, and was curbing gold imports in another attempt to clamp down on capital leaving the country.
As the FT reported, some banks with licences have recently had difficulty obtaining approval to import gold, they said — a move tied to China’s attempts to stop a weakening renminbi by tightening outflows of dollars, the banks added.
To summarize, in just the past month, China has unveiled at least three distinct sets of “controls” aimed at curbing capital flight out of China, at a time when as Goldman calculated recently, the true extent of capital outflows if far greater than what is reported by the central bank.
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