PBOC’s moves to stop capital outflows could undercut yuan’s profile
As more people worry about the state of its economic slowdown, China is getting serious about stopping the flood of money leaving the country. However, these efforts risk undermining all the work Beijing has done to raise the yuan’s profile and turn it into global currency.
The latest steps to prevent capital outflows involve curbing the ability of foreign companies in China to repatriate earnings, shrinking the pool of Chinese yuan available for banks in Hong Kong to make loans and banning yuan-based funds for overseas investments, people with direct knowledge of the matter told the Wall Street Journal.
Most of these measures haven’t been publicly disclosed, and the People’s Bank of China didn’t comment, but they come on the heels of other efforts by the central bank to crack down on money transfers and discourage investors from betting against the yuan.
“They’re sparing no effort to prevent capital outflows,” a senior Chinese banking executive close to the central bank told WSJ. “All the measures are the most aggressive I’ve seen in recent history.”
The moves are shocking considering just two months ago the International Monetary Fund designated the yuan as one of the world’s reserve currencies. While a nod to China’s rising status as a global economic power, the reserve status was primarily based on Beijing agreeing to give markets more influence in setting the yuan’s value.
However, the government’s efforts to prop up the stock market during the summer rout and the recent mixed signals over yuan policy, investors and analysts are questioning the government’s commitment to market liberalization.
“China is aggressively reinserting capital controls,” Scott Kennedy, a deputy director at Center for Strategic & International Studies, a Washington think tank told WSJ. “It appears China has for the foreseeable future given up on the goal of substantial exchange-rate liberalization.”