China increased oversight for outbound finance flows

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By Brian Jackson, China Economist, IHS Global Insight

Key Points:

  • China’s National Development and Reform Commission, the Ministry of Commerce, People’s Bank of China, and State Administration for Foreign Exchange confirmed new oversight of outbound financial flows in a statement published on government portals.
  • The document states that while China has not changed its overarching principles to permit outbound financial flows based on market needs, it is increasing oversight of some transactions described as ‘irrational’.
  • In particular, the statement refers to outbound investments into foreign real estate, hotels, movie studios, entertainment venues, and sports. It also notes the trend of ‘extremely large’ investments being outside of investor companies’ core business, and separately highlights the trend of small firms somehow making large outbound investments, including very soon after their establishment.
  • The notice ends by stating that the four organizations plan to improve the linkages between long and short-term investment mechanisms and regulations, improve the convenience of outbound investment, but also to ensure ‘market order’ and maintain a basic equilibrium in the balance of payments.

 

Significance:

The statement is so far the most concrete acknowledgement of unofficial ‘window guidance’ provided to some 20 domestic banks in late-November to make review of outbound financial flows more stringent. Despite the official statement’s ample pro-market language, the dominant impact in the near term will be stricter oversight to ensure market order and equilibrium in the balance of payments.

 

The European Chamber of Commerce in China (EUCCC) reports that several of its member firms have faced delays in regular dividend transfers ranging from several hundred million Chinese Yuan to CNY2 billion; those transfers reportedly were routinely allowed prior to 28 November 2016. The EUCCC also noted that implementation was uneven geographically; and that some firms had successfully made transfers during the same time period.

 

The official statement and anecdotal experiences signal that the policy change, which is a form of stricter capital control, will make cross border business more difficult at least in the near term.​

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China increased oversight for outbound finance flows

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