November 29, 2016 / 6:05 AM / a year ago

China forex regulator tightens controls to stem capital outflows-sources

SHANGHAI/HONG KONG, Nov 29 (Reuters) - China is stepping up measures to stem capital outflows after the yuan currency skidded to more than eight-year lows, taking aim at outbound investment, sources said on Tuesday.

The State Administration of Foreign Exchange (SAFE) has begun vetting transfers abroad worth $5 million or more and is stepping up scrutiny of major outbound deals, including those with prior approval, sources with knowledge of the new rules said.

Capital outflows through both legal and illegal channels have added pressure to the yuan’s slide. The Chinese currency has lost nearly 6 percent of its value against the dollar so far this year.

Sources said the forex regulator told banks about the new rules on Monday, the same day the government said it would stick to its “going out” strategy of encouraging outbound investment.

SAFE did not respond to a Reuters request for comment.

“Previously, only forex transfers worth $50 million or more needed to be reported to SAFE. Now, the threshold has been drastically lowered to $5 million, and covers both foreign currency and yuan,” said one of the sources with direct knowledge of the rules.

“All we can do is to ask clients to be patient, and tell them that the transaction is being vetted by SAFE for authenticity and may not be approved.”

The fresh restriction applies to transfers abroad under the capital account, for transactions such as portfolio or foreign direct investment.

The source said that even if an outbound investment had already obtained approval to buy foreign exchange, but the money had not been fully transferred, the remainder of the quota was now subject to further approval if it exceeds $50 million, which is regarded as a “large sum”.

Two other sources confirmed the new rules.

Chinese state-owned banks were seen selling dollars in the onshore foreign exchange market for a second straight day on Tuesday, in what traders said appeared to be a bid to support the yuan.

The yuan has rebounded around 0.5 percent in the past few sessions. (Reporting by Samuel Shen and John Ruwitch in SHANGHAI and Carol Zhong at Basis Point in HONG KONG; Editing by Ryan Woo and Kim Coghill)

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