Several European companies in China have been unable to remit dividends abroad following the introduction of new exchange controls, the first indication that Chinese attempts to curb capital outflows are causing problems for foreign businesses.
The EU Chamber of Commerce in Beijing said the payment difficulties experienced by European companies were “disruptive to business operations”.
The measures, which included complex approval procedures for sending money out of the country, were introduced on November 28. They appear designed to shore up China’s foreign exchange reserves following a period of unprecedented outflows of capital that have sent the renminbi down almost 6 per cent against the US dollar this year, putting it on track for its worst year on record.
China has sold dollars from its foreign exchange reserves to try to curb downward pressure on the renminbi, with reserves hitting $3.12tn at the end of October, the lowest level since March 2011.
The EU Chamber in Beijing said that, as of Monday, one company based in Shanghai had a dividend payment of several hundred million renminbi “stuck”, while another in a southern Chinese city was told last week that a Rmb900m ($131m) payment needed more time for approval.
Another company based in south-west China was asked to give a detailed payment plan for a divided payment of Rmb2bn, which the EU Chamber described as unusual. Such dividend payments would have been routine two weeks ago.
The new difficulties follow a conference call last week in which a state regulator, the State Administration on Foreign Exchange (Safe) based in Shanghai, instructed about 20 foreign and domestic banks on new “window guidance” on foreign capital flows, to be implemented immediately.
The new rules require companies to obtain Safe approval for capital outflows above $5m, such as repayment of loans or paying dividends, regardless of the currency.
“The unpublished window guidance on the control of capital outflow is disruptive to EU companies’ regular business operations,” said Jörg Wuttke, head of the EU Chamber in Beijing. “It also unnecessarily exacerbates uncertainties regarding the predictability of China’s investment environment.”
Some banks have advised clients to submit 10-page applications in support of requests to remit funds abroad, and Safe has committed to providing answers within five days.
“According to EU banks, applications can be submitted for approval; the chance of such is, however, very low at the moment,” said the Chamber in a statement. “It is observed that dividend payments previously approved are put on hold.”
The rules also appeared to differ from city to city, the EU Chamber said. The threshold for approval in some cities appeared to be lower than $5m — for example, $1m in Chongqing.
The Chamber said it knew of one successful case last week where the Shanghai branch of Safe approved an EU company shareholder’s loan repayment on November 30.