PBOC strengthens crackdown on capital flight

SHANGHAI • China's central bank will crack down on capital flight and closely monitor abnormal capital flows as it pushes financial reforms in Shanghai's free trade zone (FTZ), a senior official said yesterday.

Shanghai will strive to expand net money inflows through FTZ accounts, with many Chinese banks offering incentives to encourage individuals and companies to convert US dollars into yuan.

Mr Zhang Xin, deputy head of the People's Bank of China (PBOC) Shanghai headquarters, told a news conference that the central bank would step up anti-money laundering, and "strengthen crackdowns on foreign currency flight (as well as) step up monitoring abnormal capital flows".

The yuan has lost more than 3 per cent of its value against the US dollar since end-September, pushed down by a resurgent greenback that has gained further strength since the election of Mr Donald Trump as US president.

The Chinese currency has come into sharp focus in local and global markets as it slumped to 8-1/2-year lows amid a flight of capital from emerging economies as investors bet Mr Trump's policies will spur US growth, inflation and interest rates higher.

Offshore, the yuan weakened past 6.92 per US dollar level for the first time since it started trading overseas in late 2010. In the mainland market, the spot opened at 6.8923 per US dollar yesterday.

In a report on Tuesday, Capital Economics estimated that capital outflows last month were the largest since January, and posed a threat to China's exchange rate regime.

As part of measures to draw inflows, many Chinese lenders have been offering "preferential policies" to buyers of the Chinese currency, Bank of China's Shanghai branch vice-president Zhou Hehua said on the sidelines of the PBOC's news conference.

The Shanghai FTZ was launched in 2013 to promote global trade and cross-border investment, but three years later the city government is trying to balance efforts to accelerate financial reforms in the zone while preventing capital outflows.

Beijing is under pressure to stem capital outflows amid a slowing domestic economy and a sharply strengthening US dollar,.

Yesterday, the government announced various reform measures in the Shanghai FTZ to encourage innovation and cross-border investment. They include letting private equity funds and projects in the FTZ raise capital in the zone as well as overseas, and use the proceeds for cross-border investments. Also, multinational firms will be allowed to set up onshore cross-border yuan capital pools using Shanghai FTZ accounts to manage yuan holdings globally.


A version of this article appeared in the print edition of The Straits Times on November 24, 2016, with the headline 'PBOC strengthens crackdown on capital flight'. Subscribe