China’s capital flight crackdown could have undesired effects

Author: Brian Yap | Published: 6 Jan 2017

The Chinese government has recently made drastic moves to crack down on capital flight. But the tightening of foreign exchange conversion rules could have the adverse effect of speeding up capital outflow.

The People’s Bank of China (PBOC) announced on December 30 that, starting in July 2017, all financial institutions would be required to report any domestic and overseas cash transactions totalling more than RMB50,000 ($7,201) to the central bank, compared to the current threshold of RMB200,000. At the same time, banks will have to report any overseas transfers by individuals of $10,000 or more. This was followed by a separate announcement from the State Administration of Foreign Exchange (Safe) in which the regulator vowed to step up scrutiny over the use of the $50,000 annual quota by individuals to prevent it from being invested in restricted areas such as overseas property and securities. Reuters also reported on January 2...