Since October, the government has acted to slow outflows by tightening existing measures, such as approvals for foreign currency transfers, and has leant on banks to be stricter, making it harder for companies and individuals to change money and transfer money abroad.
SHANGHAI: Zhang Yuting lives and works in Shanghai, has only visited the United States once, and rarely needs to use foreign currency. But that hasn’t stopped the 29-year-old accountant from putting a slice of her bank savings into the greenback.
“Expectations of capital flight are clear. I might exchange more yuan early next year, as long as I’ve got money.”
She is not alone. In the first 11 months of 2016, official figures show that foreign currency bank deposits owned by Chinese households rose by almost 32 per cent, propelled by the yuan’s recent fall to eight-year lows against the dollar.
The rapid rise – almost four times the growth rate for total deposits in the yuan and other currencies as recorded in central bank data – comes at a time when the yuan is under intense pressure from capital outflows.
The outflows are partially a result of concerns that the yuan is going to weaken further as US interest rates rise, and because of lingering concerns about the health of the Chinese economy.
US President-elect Donald Trump’s threats to declare China a currency manipulator and to impose punitive tariffs on Chinese imports into the US, as well as tensions over Taiwan and the South China Sea, have only added to the fears.
“Expectations of capital flight are clear,” said Zhang, who used her yuan savings to buy US$10,000 this year. “I might exchange more yuan early next year, as long as I’ve got money.”
Household foreign currency deposits in China are not huge compared to the money that companies, banks and wealthy individuals have been directing into foreign currency accounts and other assets offshore.
All up, households had US$118.72 billion of foreign money in their bank accounts at the end of November, while total foreign currency deposits were US$702.56 billion.
But the high growth rate in the household forex holdings are symbolic of a growing headache for the government as it struggles to counter the yuan’s weakness.
Since October, the government has acted to slow outflows by tightening existing measures, such as approvals for foreign currency transfers, and has leant on banks to be stricter, making it harder for companies and individuals to change money and transfer money abroad. Read the rest of this entry »
New regulations aimed at slowing the yuan’s decline create confusion for multinationals.
French construction-materials company Cie. de Saint-Gobain SA, is finding it harder to take its money out of China.
“The process of authorization is going to become longer now. The procedures will be controlled more strictly.”
— Javier Gimeno, head of Saint-Gobain’s China operations
The conglomerate—like all multinationals operating there—faces new delays in recent weeks as Chinese regulators impose tougher restrictions on the movement of capital out of the country to slow the yuan’s decline.
“The process of authorization is going to become longer now,” said Javier Gimeno, who heads Saint-Gobain’s China operations. “The procedures will be controlled more strictly.”
Nearly 7% of Saint-Gobain’s world-wide group sales come from Asia and Oceania, a large part of that from China. The new rules are adding confusion and anxiety to a process that had been getting much easier over the past year, he said. The shift could cause some multinationals to rethink future investments in a country where once-sure payoffs are suddenly facing an uncertain return, analysts say.
As of late November, firms that want to exchange yuan into dollars in China now need approval for any transaction greater than $5 million. They also face tighter limits on amounts they can transfer in and out of bank accounts in China to affiliates in other countries, in a practice known as “cross-border sweeping.”
“We hear a lot questions from corporates about whether they will be able to repatriate their money in the future,” said Alexander Tietze, managing director at Acon Actienbank AG, a German bank that advises companies on Chinese investments. He expects foreign investments in China to slow, and cautioned that foreign takeovers or plans for new joint ventures could fail because of the controls.
With the Chinese economy struggling, multinationals have fewer opportunities to reinvest there, which makes it more difficult for them to do much with money trapped in China.
“A majority of clients are currently consolidating and restructuring their China business,” said Bernd-Uwe Stucken, a lawyer with Pinsent Masons LLP in Shanghai. Some clients are closing down their business, with new investments being the exception to the rule, Mr. Stucken said.
Adding to the confusion: it is unclear where the limits are, because regulators haven’t published official rule changes, but instead have given only informal guidance to banks, according to Daniel Blumen, partner at Treasury Alliance Group, a consulting firm.
The reaction among the United States’ strongest allies in Asia — Japan and South Korea — was more severe, however, as local stock markets plunged.
Patrick Brzesk reports: As news of Donald Trump’s shocking presidential win was reverberating around the world Wednesday, media coverage in China was oddly scant — and not by accident.
“I think Trump is the tragedy of the American people. How did he win? It must be a scam. Now I think cats and dogs can be president!”
— Sina Weibo user Zhonghua Junlon
China’s censors had issued advance orders to media outlets to restrict coverage of the U.S. democratic contest. All websites, news outlets and TV networks were told not to provide any live coverage or broadcasts of the election and to avoid “excessive” reporting of the story, a source who was briefed on the official instructions told the South China Morning Post.
“In Tokyo, and across the Japanese archipelago, the election also was a sensation. TV stations in Japan rapidly rejigged schedules Wednesday afternoon to continue coverage of the U.S. election as the reality of a Trump presidency became apparent, while the Tokyo stock market crashed as the yen soared against a weakening dollar.”
In response, coverage of Trump’s upset was carried only as a secondary story across the Chinese media landscape, with most outlets highlighting a meeting between Chinese Premier Li Keqiang and Vladimir Putin instead.
China’s foreign ministry also stopped short of issuing congratulations to Trump in the immediate aftermath of the decision, instead stating: “China is closely following the U.S. presidential election, and expects to maintain healthy Sino-U.S. relations with the new government.” (Chinese President Xi Jinping was also making calls elsewhere: he rang outer space to congratulate the astronauts aboard China’s recently launched Shenzhou 11 spacecraft, wishing them “a victorious return.”)
The press restrictions were part of Beijing’s usual strategy of limiting the Chinese public’s exposure to Western ideas and democracy. Instead, censors told Chinese media to report “in a timely manner” on any embarrassing scandals during the election and to criticize “in depth” any perceived political abuses.
“2016 looks like it may be a turning point in world history with first Brexit and now this. I’m hoping 2016 doesn’t go down as the beginning of the end.”
— A manager at a major Japanese entertainment company, who spoke on condition of anonymity
To that end, the People’s Daily ran an editorial on the eve of the election saying that the current cycle had “undeniably revealed the dark side of so-called democracy in the U.S.” The paper, which is the official mouthpiece of the Chinese Communist Party, described the presidential contest as dark, tasteless, chaotic and nothing more than a “meaningless farce.” A similar editorial controlled by Xinhua said the election was “an expression of all of the American political system’s flaws.”
As Trump’s victory began to circulate around Chinese social media late Wednesday (local time), the response was a mix of surprise, schadenfreude and amusement.
Sina Weibo user Zhonghua Junlong said of the result: “It shows that the U.S. government and democracy have weakened. And at the same times it provided our country with a prosperous opportunity — it will make China more powerful.”
A user named Fangsi de qingchun weighed in with a more democratic-leaning reaction: “I think Trump is the tragedy of the American people. How did he win? It must be a scam. Now I think cats and dogs can be president!”
A Pew Research poll conducted in October showed that Clinton was the slim favorite of most Chinese, but an SCMP poll published earlier this week suggested that Trump was viewed somewhat more favorably in China than anywhere else in Asia. Read the rest of this entry »