Corporate executives are weighing up a tougher stance from China's State Administration of Foreign Exchange (Safe), after the circulation of an unofficial copy of new rules showed the regulator was planning to increase its oversight of currency transactions.
Safe told banks on November 28 to deal "carefully" with requests for FX transactions under capital accounts from corporate clients. It has asked banks to report any transactions worth more than $5 million, compared to the $50 million cap it previously imposed.
Two separate sources confirmed the details of the order from Safe, citing the minutes of a Safe meeting on November 28. The minutes were also obtained by The Corporate Treasurer, FinanceAsia’s sister publication.
But for those trying to get a grasp on the exact rules, confusion reigned. No official copy of the rules was issued, and unofficial copies were rapidly deleted on the orders of censors.
FinanceAsia reached out to the operator of one website that published the document, and was told he received a notice from the Cyberspace Administration of China, the country's internet watchdog, to remove the story.
The move to clamp down on Chinese companies' foreign exchange transactions comes amid a stark reversal in the fortunes of the renminbi. China’s currency began to depreciate against the dollar last year, reversing a strengthening that had lasted for a decade.
The increased fears about renminbi depreciation meant the move by Safe got some support from local treasurers.
“Pressing hard on a bleeding wound to stop the bleeding is way better than doing nothing,” said a Beijing-based treasury head at a major Chinese state-owned company, who has been briefed on the rule changes by regulators
Clamping down
Under the unofficial version of the new rules, from 9am on November 28 banks must report to the capital account management department of Safe’s Beijing bureau before executing any capital account transaction for a corporate client that reaches or exceeds $5 million.
This is a dramatic tightening. Previously, only FX transfers worth $50 million or more were subject to reporting, according to a November 29 Reuters report, citing sources with direct knowledge of the matter.
Such a transaction could be the purchase of currencies or an outbound payment — potentially making it tougher for Chinese companies to get approval for overseas investments.
Safe is putting further focus on outward direct investment. Approved outbound investments for which the money has not been fully remitted overseas are now under scrutiny if the unremitted amount surpasses $50 million, creating greater uncertainty around those deals.
Only after the transaction is reviewed for authenticity and compliance by regulators including the People’s Bank of China, Safe, the National Development and Reform Commission, and the Ministry of Commerce, can banks proceed with the deal, according to the unofficial document.
This week, before close of business each day, banks must also report to Safe details of their capital account business operations during the day. This includes changes and new registrations of direct investment in foreign exchange, corporate applications for currency purchase and settlement, and banks’ responses to corporate enquiries.
No official notice on the matter has been issued. Censors quickly deleted items that were described as copies of the rules after they circulated online earlier, leaving treasurers befuddled over the lack of policy transparency.
A joint statement by the four regulatory bodies including Safe on November 28 said they would “adhere to relevant rules to vet some foreign investment projects by companies”, without specifying which rules they were
On the evening of November 29, Safe issued a brief statement on its micro-blog that the regulator would always help “capable corporates to conduct legitimate and compliant overseas direct investments” and that it was now only targeting “fake” transactions. But the FX regulator offered no information beyond that.
China’s FX reserves declined for a fourth consecutive month to $3.12 trillion as of the end of October, the lowest level since March 2011, as the government continues to sell dollars from its FX reserves to defend the renminbi. The Chinese currency has lost approximately 5.8% of its value against the dollar this year.
According to the Ministry of Commerce, Chinese companies have spent around $146 billion in non-financial outbound investments over the first 10 months of 2016, up 53.3% from the same period last year.
The original version of this article appeared on our sister publication, The Corporate Treasurer.
