Just over a week after concerns were raised about whether China’s new regulations on cash transactions and overseas transfers were capital controls in a disguised form, Finance Magnates has learned that China’s foreign exchange regulator, the State Administration of Foreign Exchange (SAFE), has been asking banks to keep its instructions about curbing capital outflows a secret, and to ensure that research analysts keep any negative views related to the yuan’s prospects to themselves, according to a Reuters report.
The move is seen as an attempt to ward off fears that could trigger further declines in the yuan which lost over 6 percent against the dollar last year and is currently at eight-year lows.
No Written Instructions
The situation has prompted a series of restrictive measures on capital outflows from SAFE, including setting limits on banks’ currency volumes and requiring approval for ever smaller transactions.
SAFE has instructed dozens of banks not to reveal their role in such restrictions, which some banks have said is damaging their relationships with clients since they are not permitted to explain the reason for turning away business.
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Officials at SAFE reportedly told bankers: “You must control your forex deficit, but you can’t say that SAFE is controlling capital outflows”.
A banker at Chinese Commercial Bank Ping An who had received SAFE instructions from seniors said: “We’re not going to tell our customers that our forex business has stopped; we just have to find ways to turn down the business we’re not allowed to do. It’s not good for client relationships,” he added, explaining that he had told his clients to go to other banks.
Fake Transaction Alert
Banks have also been told to interview clients to make sure the forex deals were not for fake transactions, or they could face punishment, according to the report.
China’s foreign exchange reserves fell to $3.05 trillion in November from $3.3 trillion in the first 11 months of 2016 with many traders anticipating further outflows as US interest rates rises make dollar assets more attractive. SAFE, however, wants banks to advise clients to buy yuan and sell dollars, a move that is likely to lose clients money.
The regulator is also said to be constricting programmes that are designed to open overseas markets to Chinese investors. For example, an investment programme set up so global funds can raise Chinese cash to invest overseas has ground to a halt without explanation.
A representative from an international bank explained there were no written instructions from SAFE, but a high-ranking official told them explicitly what was expected of them.