China markets

China sets limits on buying of US dollars

A yuan banknote is displayed with a US dollar banknote (back).
A yuan banknote is displayed with a US dollar banknote (back). PHOTO: REUTERS

Order to banks in some of its major import and export centres is to curb capital outflows

SHANGHAI/HONGKONG • China's foreign exchange regulator has ordered banks in some of the country's major import and export centres to limit purchases of US dollars this month in the latest attempt to stem capital outflows.

This information came yesterday from three people with direct knowledge of the order.

The move comes as China reported its biggest annual drop in foreign exchange reserves on record last year, while the central bank has allowed a sharp slide in the yuan currency to multi-year lows, raising fears of more capital flight and panicking global markets.

The price spread between the onshore and offshore markets for the yuan has been growing since China's surprise devaluation last August, spurring Beijing to adopt a range of measures to curb outflows of capital.

All banks in certain trading hubs, including Shenzhen, received the regulator's order recently, the sources added. They declined to be identified because they are not allowed to speak to the media.

"It will have some impact, because it is a form of control, but at the moment the limit doesn't seem very restrictive so unless they extend the period of the limit, it's unlikely to change volumes over the whole year," said a senior banker in the foreign exchange department of a foreign bank. "It's just to stop panic buying this month," the banker added.

The total amount of United States dollars sold to clients this month for a bank in one of these hubs cannot exceed the amount sold in December, according to the sources.

"They have asked us to limit our purchase amount and there are targets, but it mainly relates to institutions and enterprises; there is no change to the policy on individuals," said one source.

Officials at the State Administration of Foreign Exchange did not immediately respond to comment.

China suspended forex business for some foreign banks, including Deutsche, DBS and Standard Chartered at the end of last year.

Meanwhile, the country's securities regulator also said it will manage the pace of new share listings to ease pressure on the stock market, as Beijing seeks to tamp down rising volatility after markets plunged over 10 per cent this week.

"We will make rational arrangements regarding IPO approvals in order to ensure a smooth transition from the approval system to the registration-based system," said Mr Deng Ge, a spokesman for the China Securities Regulatory Commission (CSRC), at a news conference yesterday.

He also said companies planning to list will need at least half a month to prepare their applications to meet new regulations on listings published last month.

CSRC said it was drafting rules for the migration to the US-style registration-based IPO system and will publish them when the time is right.

REUTERS

A version of this article appeared in the print edition of The Straits Times on January 09, 2016, with the headline 'China sets limits on buying of US dollars'. Print Edition | Subscribe