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China loosens grip on capital outflows

China loosens grip on capital outflows

(20 April 2017 – China) The People’s Bank of China (PBOC) has relaxed some of the curbs on cross-border capital outflows it put in place just months ago to shore up the yuan currency.

The first easing of the measures comes as China’s leaders and financial markets feel more confident that pressure on the yuan and the country’s foreign exchange reserves have diminished, thanks largely to a pullback in the surging US dollar.

The yuan eased around 6.5 percent against the US dollar last year but has firmed nearly 1 percent in 2017.

With less incentive for capital flight and the economy on steadier footing, China’s foreign exchange reserves have clawed back above the closely watched US$3 trillion (A$3.99 trillion) level.

Premier Li Keqiang said that market confidence in the yuan has significantly improved, a Chinese publication reported.

As of last week, sources say China’s central bank is no longer demanding that banks match outflows with equal inflows.

Speaking to Reuters, ANZ’s Greater China Economist Raymond Yeung said expectations of further yuan depreciation have eased in recent months, opening a window for authorities to relax recent measures, but Beijing is not likely to let go totally.

While the world’s second-largest economy still has the largest stash of forex reserves by far, it had burned through over half-a-trillion dollars since August 2015 trying to support the yuan.

Although China’s recent efforts have limited speculative outflows, and stabilised the yuan, business expansion and foreign investment have also been impacted.

Earlier this week, China reported that its non-financial outbound direct investment (ODI) slumped 30.1 percent in March from a year earlier as authorities kept a tight grip on outflows. In the first quarter, it fell nearly 49 percent.

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