Expert analysis: Why the CCP intends to lift restrictions on foreign exchange purchases

The Chinese Communist Party‘s Foreign Exchange Bureau recently said that it is studying the relaxation of RMB outbound restrictions. In addition to lifting the annual limit on foreign exchange purchases by domestic individuals, each person will be allowed to invest $50,000 per year to buy overseas securities and insurance. So, why did the CCP lift the restrictions on foreign exchange purchases and relax the outbound RMB? Will this statement by the Foreign Exchange Bureau really be implemented eventually?

People’s Daily Online, the official media of the Communist Party of China, reported on Feb. 20 that Ye Haisheng, director of the capital project management department of the State Administration of Foreign Exchange, wrote in China Foreign Exchange magazine that it is studying the orderly relaxation of restrictions on individual business under capital, including the abolition of the annual $50,000 limit for domestic individuals to exchange foreign currency and allowing domestic individuals to make investments in overseas securities and insurance within the annual $50,000 quota.

In other words, at present, each person can only exchange $50,000 per year, which can only be used for overseas travel, study and living expenses required for overseas work, but now the quota limit is abolished, while the use can also be used for overseas investment. The new residents in China can use $50,000 per year of their domestic savings to purchase overseas securities and insurance. Assuming a Family with three adults, the family could use $150,000 per year for overseas investments.

The report also said that Ye Haisheng also mentioned that the Bureau of Foreign Exchange will promote the implementation of the Qualified Domestic Institutional Investor (QDII) system, raise the total QDII quota in due course, and flexibly grasp the pace and scale of quota issuance according to the foreign exchange balance situation to meet the cross-border asset allocation needs of domestic market players.

In layman’s terms, domestic residents can give their money to qualified domestic institutional investors who help invest it in overseas markets because their RMB exit quota has been raised, i.e., the original limited quota has been relaxed.

Commenting on this statement by the Communist Party’s Foreign Exchange Bureau, Xie Tian, a professor at the University of South Carolina’s Aiken School of Business, told the Epoch Times that it is very unlikely that it will actually be implemented, and that it is only putting out the word to stabilize the people’s money.

“Because now the foreign exchange funds fled especially a lot, many people are in any way, at any cost to the funds and property into dollars to exchange out, which is the loss of dollars to the Chinese Communist Party, put out this wind, those who are anxious to escape the money will think that later will be liberalized, will be assured that the money will remain in the country, to reduce the pressure of the pulse of the yuan for foreign exchange, so that the dollar assets, dollar outflow The trend has slowed down, this is a cunning consideration of the Chinese Communist Party.”

In addition, it does not rule out that it uses this to fish and feel the bottom, “to see how many more people have this ability.”

Xie Tian said that the previous policy has been tightening not to exchange, now proposed only in the study of its possibilities, “from the Chinese Communist Party now this foreign exchange policy, it is impossible to do, if you really want to do, if the RMB is particularly confident, it is directly open RMB exchange, directly open the free exchange of RMB on the good, do not have to engage in limits not limits. ” Xie Tian said.

The South China Morning Post analyzed that the reason for the relaxation of foreign exchange controls is because the Epidemic has changed the world pattern, due to the increase in world demand for China’s medical protection and office supplies at Home, leading to an increase in China’s exports, increasing China’s trade surplus to $535.03 billion in 2020, with an excessive trade surplus not only raising the cost of foreign exchange reserves. Coupled with the ultra-low interest rates imposed by countries under the epidemic, it has intensified the pressure on the appreciation of the RMB. Therefore, a moderate amount of RMB investment outside of China will help balance trade and improve the quality and speed of China’s economic growth.

Li Hengqing, director of the U.S. Institute for Information and Strategic Studies, told the Epoch Times that China’s foreign trade has increased rather than decreased in the recent period because of the epidemic control, and the Communist Party leaders thought this would be a normalization, but in fact it will not be. We predict that if the epidemic is basically controlled globally in the next year or so, the industry chain will be rewritten at that Time, because the industry chain has moved out of China a lot in the past, and later it will be found that China’s demand for foreign trade (export part) will increase a lot, because it needs foreign exchange to buy other commodities, and it does not have so many export opportunities.”

Li Hengqing said the Chinese Communist Party is now worried that in the past few months due to the growth of foreign exchange more than 100 billion U.S. dollars, this money because of the U.S. restrictions on the purchase can not go to buy including chips, highly sophisticated weapons such as aircraft engines, a lot of weaponry, this foreign exchange reserves if it does not work, that is actually a big risk.

“Now the Chinese Communist Party hopes that after the liberalization, these entrepreneurs’ money can be invested in high-tech products in the U.S. I believe the approval of foreign exchange will be very convenient because they especially want to be able to buy out U.S. high-tech products and high-tech companies so that they can take the technology directly back to China, and this is now exactly what they are missing. Now that it’s making a lot of foreign exchange in its hands, it really wants to be able to function, and it wants to solve this problem by letting a little bit of wind out first.”

According to Li Hengqing, there are also reasons why the Chinese Communist Party dares to be so liberal now. First of all, in the past year or so, the CCP has been very strict control of funds, including a large-scale strict control of foreign exchange out of the enterprise, “such as Wu Xiaohui was arrested and locked up in jail, Wang Jianmin’s whole family was controlled and banned from leaving the country, forcing them to sell their assets and other such work is being done in a tight schedule.”

At the same time, some time ago, the bank account already has a real name registration requirements, “when withdrawing cash, the company if more than 400,000 to be registered, to make an appointment in advance, the private more than 100,000 to be registered to make an appointment in advance, these are also to strengthen control.”

Moreover, China is now preparing to launch a digital currency from the People’s Bank of China, and after the launch, it will be easier to control for the funds. “So, they may think that now they have all these under control, and now they are thinking how to make a big pile of foreign exchange in their hands to be able to play a positive role in the operation of the subsequent economy.”

However, Li Hengqing said there is a very potential danger after the liberalization, “the liberalization of foreign exchange may bring a great risk that from Chinese businessmen to ordinary people will try every way to transfer their assets abroad to avoid the risk of a massive economic downturn in the next few years.”

“For example, the UnionPay card can now be used to withdraw cash directly from abroad, and that cash will not be RMB, it will be foreign exchange, and it will generally be settled in US dollars. If it is able to exchange directly, there will soon be a large amount of cash really fleeing, a massive transfer of assets, foreign exchange will soon be put out.”

Li Hengqing said, to make the liberalization into reality, the Communist Party of China Foreign Exchange Administration will do a lot of requirements in the process of specific operations, “for example, the Foreign Exchange Administration and various banks will strictly control the quota, rather than just want to transfer, may be directed to do some, such as export merchants directed to purchase, or some necessary goods. “

Xie Tian said, if really want to implement the liberalization there is a possibility, is especially for the powerful to open an opening, “like when the Chinese Communist Party reform and opening up at the beginning, let a part of the people get rich first, then everyone thinks they are that part of the people, but finally found that the Chinese Communist Party powerful to get rich first. This time, if it really lets go of an opening, it may also be that one of the parties to the infighting needs to exchange the yuan in its own hands into dollars and release it, and then seal the opening when it is done. It can’t be ruled out that it’s part of its plan to sink the ship.”

“But all in all, the CCP will never give concessions to the people, nor will it let the people lose their real assets, their Gold and silver-like real foreign exchange assets. Now that the regime’s economy is going to collapse and the regime crisis is getting bigger and bigger, it will definitely not let its own blood run dry.” Xie Tian said.