Alarmed at rising capital outflows from the country, China is said to have tightened the rules related to fund repatriation by multinational firms.
The State Administration of Foreign Exchange has instructed banks to sharply limit the money that companies can move out of the country and into their other operations around the world, according to the Wall Street Journal.
Until this week, it was possible for big firms to “sweep” US$50 million worth of yuan or dollars in or out of China with minimal documentation.
But now, the cap has been reduced to the equivalent of US$5 million, the report said, citing bankers and officials familiar with the matter.
Multinational companies are suddenly finding themselves in the crosshairs as China is trying to stem an increasingly vicious cycle of capital outflows that weaken the yuan, according to the Journal.
The clampdown on “sweeping” follows a meeting on cross-border capital flows last week at China’s central bank, where officials are said to have expressed alarm over a spurt in outward remittances.
Before the so-called sweeping was permitted in an experimental free-trade zone in Shanghai in mid-2013, firms wanting to move cash generated by their China operations faced cumbersome documentation and extra taxes.
The IMF cited “sweeping” among the reasons it considered the yuan credible as a global reserve asset.
The pullback now suggests Chinese authorities are alarmed that many firms are using it to move yuan directly offshore, such as to Hong Kong, where it can be freely exchanged, the Journal said.
However, central bank officials are said to have described the new limits as temporary, and that they remain committed to the yuan’s internationalization
– Contact us at [email protected]