Shanghai - China's central bank has
relaxed some of its curbs on cross-border capital outflows put
in place just months ago to shore up the yuan currency, banking
sources said on Wednesday.
The first loosening of the curbs comes as China's leaders
and financial markets feel more confident that pressure on the
yuan and the country's foreign exchange reserves has diminished,
thanks largely to a pullback in the surging US dollar.
The yuan slumped around 6.5 percent against the dollar last
year, but has firmed nearly 1 percent in 2017, defying -- for
now -- many analysts' expectations of further depreciation.
With less incentive for capital flight and the economy on
steadier footing, the country's foreign exchange reserves have
clawed back above the closely watched $3 trillion
level.
Premier Li Keqiang said on Tuesday that market confidence in
the yuan has significantly improved, Xinhua news agency
reported.
As of last week, the People's Bank of China (PBOC) is no
longer demanding that banks match outflows with equal inflows,
the sources said.
The South China Morning Post first reported the relaxation
of the capital controls earlier on Wednesday.
There was no immediate comment from the People's Bank of
China when contacted by Reuters. The State Administration of
Foreign Exchange (SAFE) did not have an immediate response to
Reuters' questions on the SCMP report.
While the world's second-largest economy still has the
largest stash of forex reserves by far, it had burned through
over half a trillion dollars since August 2015 trying to support
the yuan.
The government reacted by intensifying capital controls late
last year, making it harder for individuals and companies to
move money out of China.
Those measures are credited with quashing speculative
outflows and helping to stabilise the currency, but have also
hampered legitimate outflows as China Inc goes more global.
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Chinese businesses have complained that the curbs were
damaging their plans for overseas investments and acquisitions,
while foreign firms have been more reluctant to invest in China
for fear of having trouble repatriating profits.
On Tuesday, China reported that its non-financial outbound
direct investment (ODI) slumped 30.1 percent in March from a
year earlier as authorities kept a tight grip on outflows. In
the first quarter, it fell nearly 49 percent.
While Beijing says it supports legitimate overseas
investment, regulators have warned they would pay close
attention to "irrational" investment in property, entertainment,
sports and other sectors.
The sources did not spell out what criteria would still be
applied to outflows.
"Actually, it'll be the same as SAFE's previous policy
stance emphasising that cross-border settlements for legal and
compliant business are guaranteed," said one of the sources, who
declined to be identified.
While the Federal Reserve is still widely expected to raise
interest rates two more times this year, which could revive the
drooping dollar against emerging currencies, a string of
disappointing US data in recent weeks has reduced prospects of
a rate hike until later this year.