China gets stricter on forex transactions

Beijing - At risk of capital flight, China marked the New Year with extra requirements for citizens converting yuan into foreign currencies.

The State Administration of Foreign Exchange, the currency regulator, said in a statement December 31 that it wanted to close loopholes exploited for purposes such as money laundering and illegally channeling money into overseas property.

While quotas of $50 000 per person per year were left unchanged, citizens must give extra information under bank forms introduced January 1. Key elements:

Customers must pledge money won’t be used for overseas purchases of property, securities, life insurance or investment-type insurance. While such rules aren’t new, citizens previously didn’t have to sign such a pledge.

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, including the timing, by year and month.

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.

The annual limit for individuals resets on January 1, potentially aggravating capital outflow pressures that have already been intensifying after the yuan suffered its steepest annual slump in more than two decades.

An estimated $689bn flowed out of the country in the first 10 months of 2016, according to a Bloomberg Intelligence gauge.

The yuan fell 0.1% to 6.9546 per dollar on Tuesday, approaching an 8 1/2 year low.

SAFE also warned of the potential risks from investing in foreign assets, adding that yuan deposit rates are 'significantly" higher than overseas equivalents.

Investors face "significant uncertainty and risks" on the returns from foreign-currency holdings, SAFE said.

Banks should make spot checks on individuals’ foreign-exchange reports, penalizing those who provide false information or illegally move money abroad, it said.