An official of China’s State Administration of Foreign Exchange (SAFE) said in a release that the authorities will consider relaxing restrictions on individual business under capital this year.
Recently, an official of the State Administration of Foreign Exchange of China said that the authorities will consider relaxing the restrictions on business under individual capital this year, including studying and demonstrating the possibility of allowing individuals to make overseas investments within the quota, removing the limit of annual purchase and payment of foreign exchange, etc. Does this mean that China is going to loosen the foreign exchange control?
Ye Haisheng, director of the capital project management department of the State Administration of Foreign Exchange of China, said in a recent interview in the magazine “China Foreign Exchange” that the Foreign Exchange Bureau will study the “orderly relaxation” of individual business restrictions this year, including research and demonstration of the feasibility of allowing domestic individuals to make overseas investments in securities and insurance within the annual quota of $50,000, the cancellation of the annual purchase and payment of foreign exchange The company will study the feasibility of allowing domestic individuals to make overseas investments in securities and insurance within an annual quota of US$50,000, abolish the annual limit on purchase and payment of foreign exchange, and optimize the management process. The news immediately aroused strong concern from the industry.
Can you finally invest in foreign exchange purchases?
The exchange rate of RMB against USD has risen sharply since June last year, and has appreciated nearly 9% from June 1 last year.
The new version of the “Application Form for Individual Foreign Exchange Purchase” in 2017 had explicitly prohibited individuals from purchasing foreign exchange for capital items that have not yet been opened up, such as buying houses abroad, investing in securities and buying Life insurance. This means that China may open up some of its capital items.
Zheng Xuguang, a U.S.-based economist and stock investment manager, said opening up personal investment abroad could ease the inflationary pressure on China caused by the New Crown (Chinese Communist virus) Epidemic.
“During the New Guinea epidemic last year, China’s trade surplus grew sharply and foreign exchange reserves increased, which could cause yuan Inflation.”
The reporter noted that China’s foreign exchange reserves rebounded from 2017 after a significant retreat during 2015-16 and saw the largest year-on-year increase in seven years in November last year. As of January this year, China’s foreign exchange reserves stood at about $3.21 trillion, roughly the same level as five years ago.
In 2007, the State Administration of Foreign Exchange (SAFE) issued the Rules for the Implementation of Individual Foreign Exchange Management Measures, which limited individual foreign exchange settlements and domestic individual purchases to the equivalent of $50,000 per person per year. If this amount is exceeded, proof of authenticity with the transaction amount is required. This amount has remained unchanged since then, although the document states that the authorities may adjust the total annual amount based on the balance of payments situation. Over the years, this policy has inconvenienced an increasing number of families of Chinese students. If a student’s annual study expenses exceed the $50,000 limit, he or she will need to provide his or her passport, school acceptance letter, proof of tuition or proof of living expenses before being able to purchase foreign currency.
According to Chinese finance scholar He Jiangbing, too much foreign exchange reserves will also put pressure on financial regulators, so it makes sense to loosen foreign exchange controls now.
“Too much foreign exchange reserves is also a burden for the foreign exchange authority, which puts pressure on them to preserve and appreciate the value, so the authorities decided to liberalize. This kind of pressure was seen in 2007, and now it’s back to that.”
State Administration of Foreign Exchange official Ye Haisheng also mentioned that China is expected to cancel the annual limit on the purchase and payment of foreign exchange and optimize the management process, but did not talk about specific details.
Analysts: good for stabilizing the yuan exchange rate
China may open up some of its capital projects.
On the other hand, influenced by the new crown epidemic significantly dragging down the U.S. economy and other factors, the yuan has risen sharply against the U.S. dollar since June last year, and has appreciated nearly 9% from June 1 last year. Wen Bin, chief researcher of China Minsheng Bank, told the media last week that if residents can invest directly abroad, this will be conducive to expanding their investment channels and diversifying their asset allocation, on the one hand.
On the other hand, it is also conducive to the two-way flow of cross-border capital and maintaining the overall stability of the RMB exchange rate level.
Zhou Chengjun, director of the Institute of Finance of the Central Bank of China, said in a recent article that the opening up of China’s financial markets would help internationalize the yuan, and that opening up the financial markets also includes opening up the foreign exchange market, which requires the choice of a fully open capital and financial account and the free flow of cross-border funds. He also wrote, “As the internationalization of the RMB is promoted, ultimately the RMB exchange rate will have to be left to the market.”
He Jiangbing said the policy move revealed by the China Foreign Exchange Bureau recently signaled the authorities’ desire to further promote the internationalization of the yuan.
“The removal of quota restrictions is the most important step toward the internationalization of any currency. The second step is to abolish exchange rate control, so that the local currency is internationalized.”
In addition to considering allowing domestic individuals to make overseas investments and lifting the limit on the annual purchase and payment of foreign exchange, foreign exchange bureau official Ye Haisheng said they will also push forward the opening of the stock and bond issuance markets, promote the implementation of the system for qualified domestic institutional investors, and promote the pilot foreign exchange business of securities companies, among others.
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