Date
25 July 2017
Tourists walks past a man advertising renminbi exchange services. The Chinese currency has weakened after an surprise devaluation in August. Photo: Reuters
Tourists walks past a man advertising renminbi exchange services. The Chinese currency has weakened after an surprise devaluation in August. Photo: Reuters

China asks domestic funds to postpone new outbound products

Chinese regulators want several domestic funds to postpone new outbound investment products amid a capital flight that is undermining the yuan and spooking global investors.

China’s stock markets are down about 25 percent this year and the yuan has weakened after an unexpected devaluation in August, raising concerns about the strength of the economy and prompting Chinese to move more money offshore, Reuters reports.

About US$676 billion left China in 2015 when market turbulence set in and the economy grew at its weakest pace in a quarter of a century.

In the latest effort to control capital outflows, some funds have been asked to defer the launch of new products under the qualified domestic institutional investor (QDII) program,  the report said, citing five sources with direct knowledge of the matter.

The sources said the request by the China Securities Regulatory Commission was characterised as a temporary one and no specific time frame was given.

The CSRC and the State Administration of Foreign Exchange declined to give immediate comment.

Other measures introduced to stem capital flight include tightening restrictions on money leaving China from banks in coastal cities and large interventions in the offshore yuan market in Hong Kong to push up the cost of speculation.

The QDII program allows Chinese banks, insurers and mutual funds to buy offshore stocks and other securities on behalf of clients, and is one of several ways Chinese firms and individuals can get money out of the country legally.

China’s capital controls otherwise place strict limits on the amount of money individuals and firms may move out of the country and for which purposes.

Still, many residents find other ways to do so, with cash ending up in foreign property, offshore life insurance policies that can be used as collateral for further loans and other assets.

About US$90 billion in quotas has been granted under the QDII scheme.

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