China’s New Foreign Currency Restrictions


China’s foreign exchange reserve has plunged to $3.6 trillion. According to a Bloomberg Intelligence gauge, an estimated $762 billion flowed out of the country in the first 11 months of 2016.

China has stepped up its monitoring of forex transactions. From January 1st 2017, Chinese citizens are required to provide more detailed information before converting their Chinese yuan into foreign currencies, according to the website of the State Administration of Foreign Exchange (SAFE).

While Chinese citizens are still allowed to send up to $50,000 a year out of China, the latest directive did add another layer of approval processes. Getting money out of China has become more complicated due to China’s efforts to slow down a foreign currency exodus.

Key elements of the new requirements:

Customers must sign a pledge, affirming that the money won’t be used for overseas purchases of property, securities, life insurance or investment-type insurance.

Customers must give a more detailed account of the planned use of funds, such as business travel, overseas study, family visits, medical treatment, merchandise trade or purchases of non-investment insurance policies.

Violators of foreign exchange rules will be added to the currency regulator’s watch list, denied foreign exchange quota for three years and subjected to anti-money-laundering investigations.

Customers must confirm compliance with restrictions on money laundering, tax evasion and underground bank dealings.

Customers must now confirm they aren’t lending or borrowing quotas to or from other citizens.

Investors face “significant uncertainty and risks” on the returns from foreign-currency holdings, SAFE warned. Banks should make spot checks on individuals’ foreign-exchange reports, penalizing those who provide false information or illegally move money abroad, it said.

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