China will not retreat to old ways of capital control: official

Chinese yuan notes at a bank. Photo: Imaginechina/Corbis

China will not retrogress to the era when the government clamped harsh controls on capital flows, the head of the country's foreign exchange regulator said on Monday.

In an interview with the yicai.com, a local business news portal, Pan Gongsheng, the head of the State Administration of Foreign Exchange, denied the view that the Chinese government will carry out tighter foreign exchange controls amid global concerns over more possible rate hikes by the Federal Reserve.

"We will stick to the principle that we will not close the window that is already opened, and that our foreign exchange policy will not retreat or even go back to the old way of capital control," said Pan, who defended the country's economic integration into the world economy.

The foreign exchange policy will continue to serve cross-border investment and the development of the real economy while prevent risks brought by cross-border capital flows, said Pan.

China's foreign direct investment surged 44 percent in 2016 from the previous year, and the rapid growth in such a short period has caused concerns among the policymakers over potential problems. As a result, China issued a stricter policy in November to curb outbound investment and acquisitions.

Some companies' overseas investment are not based on clear strategies, and are like "a rose with a thorn", which may lead to many problems in years later, Pan said, adding that overseas mergers and acquisitions need thorough market analysis and effective business integration.

"The Chinese government supports local enterprises, especially the capable ones with good qualifications to carry out actual overseas investment activities and to take part in the One Belt One Road construction and international industrial cooperation," Pan said, according to yicai.com.

Pan also said that China will open up more sectors for foreign direct investment, encouraging the inflows of foreign funds. "China will continue to be one of the most attractive investment destinations for foreign funds … and China's policy on foreign funds usage will not change," he said.

Foreign exchange policy unchanged, tighter supervision

At the beginning of 2017, China tightened its supervision over personal foreign exchange outflows by asking Chinese residents buying US dollars to fill out an application form clarifying their purpose of purchases. It also tightened scrutiny on ban of personal overseas investment such as property and insurance purchases.

In the interview, Pan dismissed the view that the policy is a sign of foreign exchange policy tightening, saying that it can be interpreted as an action to strengthen international cooperation on combating money laundering, tax base erosion and terrorist financing.

Pan highlighted that China has not opened up the purchases of overseas insurance policies for investment purposes, which he said could serve as channels for capital flight, money laundering and tax evasion, and also gives rise to bubbles in the insurance market.

The SAFE head stressed that the government will crack down on illegal cross-border capital flows and personal purchase of foreign currencies that goes against regulatory rules.

Wider access to China's financial market

Recently, China's State Council released a circular to further lower the threshold on market access for foreign banks, securities companies, futures companies, insurance companies, insurance intermediary and securities fund management companies.

"It's a good time for China" to carry out further reform to allow wider access to its financial market, said Pan.

Since 2016, the People's Bank of China (PBC) and the SAFE have rolled out a series of policies, which included carrying out all-around prudent management on cross-border financing, promoting opening up of interbank bond market to foreign institutional investors and deepening Qualified Foreign Institutional Investor (QFII) reforms.

Fluctuations in foreign exchange reserves a 'new normal'

Commenting on the recent fears over China's shrinking foreign exchange reserves, Pan said that the fluctuation is "normal" amid complicated economic and financial environment, and it will not affect China's payment ability.

China's foreign exchange reserves totaled $2.998 trillion at the end of January, falling $12.3 billion on month, according to data from the central bank.

But the country remains the world's largest holder of foreign exchange reserves, accounting for 28 percent of the world's total foreign exchange reserves.

Looking into the 2017, although the unstable global economy, the continued impact of global financial crisis, Trump's looming policies and a trend of "anti-globalization" will affect the stability of the global economy, Pan believed that many factors could still help guarantee the balance of China's cross-border capital flows.

These factors include the medium to high-speed economic growth in 2016, the faster upgrade of China's economic structure, the ongoing trade surplus trend, the foreign investors' confidence in the Chinese economy as well as the abundant foreign exchange reserves, he said.
 


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