China’s central bank will allow funds in non-resident accounts to be converted into fixed deposits, sources told Reuters, which could encourage foreigners’ to keep trade-related earnings in the country and help authorities temper capital outflows.
Four people with direct knowledge of the matter told Reuters on Monday that the People’s Bank of China has issued a document to the effect, with commercial banks expected to receive formal notice soon. Some regions have already started preparing details to implement the new regulation, they said.
“Regulators hope to prevent capital outflows,” said a banking source demanding anonymity. “The latest step shows regulators are trying to attract more funds into the country, so as to offset outflows.”
Beijing has been fighting to suppress speculative activity and capital flight resulting from downward pressure on the yuan against the dollar, but it has its work cut out amid confusion over its currency policy and a slowing domestic economy.
Letting foreign companies reallocate earnings from trade into fixed deposit accounts would theoretically benefit these firms as they can earn higher returns on their cash than they might at home, given negligible interest rates on dollar assets.
In some ways the latest move smacks of a carrot and stick approach: The central bank has already asked commercial banks to strengthen supervision of NRA purchases of foreign exchange in China, among other measures to make it more difficult to move money quickly out of the country.
Assets Climb
Chinese banks held 194.2 trillion yuan ($29.5 trillion) in onshore assets at the end of 2015, according to data from China Banking Regulatory Commission, Xinhua reported.
The volume was up 15.55 from a year earlier, the banking regulator said.
The combined onshore assets of China’s “big five” lenders, including the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications, came in at 73.67 trillion yuan by the end of 2015, accounting for 37.9% of the total assets in the sector.
By 2015, the lenders’ onshore liabilities grew by 14.8% to reach 179 trillion yuan, the data showed.
Meanwhile, China is reportedly considering launching its own virtual currency, having clamped down on Bitcoin use in the country. According to a report in The Register, China’s central bank is looking at virtual currencies as a means of exerting more control over the country’s money supply.
