Converting yuan into foreign currencies gets harder

At risk of capital flight, China marked the new year with extra requirements for citizens converting yuan into foreign currencies.

While State Administration of Foreign Exchange left unchanged quotas of USD50,000 of foreign currency per person a year, citizens faced extra disclosure requirements from January 1.

The annual limits for individuals’ currency conversions reset at the start of each year, potentially aggravating outflow pressures that intensified in 2016 as the yuan suffered its steepest annual slump in more than two decades. An estimated $762 billion flowed out of the country in the first 11 months of last year, according to a Bloomberg Intelligence gauge, pumping up residential property markets from Vancouver to Sydney. Some money also spilled across the border into Hong Kong insurance products.

Key elements of the new requirements:

Customers must pledge money won’t be used for overseas purchases of property, securities, life insurance or investment-type insurance. While such rules aren’t new, citizens previously didn’t have to sign such a pledge.

Customers must give a more detailed account of the planned use of funds, such as business travel, overseas study, family visits, medical treatment, merchandise trade or purchases of non-investment insurance policies, including the timing, by year and month.

Violators of foreign-exchange rules will be be added to the currency regulator’s watch list, denied foreign-exchange quota for three years and subjected to anti-money-laundering investigations.

Customers must confirm compliance with restrictions on money laundering, tax evasion and underground bank dealings.

Customers must now confirm they aren’t lending or borrowing quotas to or from other citizens.

The measures may curb enthusiasm for purchases of dollars and ease pressure for capital outflows, according to Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong.

The yuan fell 0.1 percent to 6.9554 per dollar yesterday, approaching an 8 1/2 year low.

SAFE also warned of the potential risks from investing in foreign assets, adding that yuan deposit rates are “significantly” higher than overseas equivalents.

Investors face “significant uncertainty and risks” on the returns from foreign-currency holdings, SAFE said. Banks should make spot checks on individuals’ foreign-exchange reports, penalizing those who provide false information or illegally move money abroad, it said. Bloomberg