* China seeks to impose limits on yuan outflows - sources
* Banks in coastal cities asked to tighten outflows - sources
* Measures aimed at curbing bets on CNY decline (Adds details, quotes)
HONG KONG, Jan 19 (Reuters) - Chinese regulators are tightening restrictions on cross-border outflows from banks, people with direct knowledge told Reuters, the latest in a series of steps by Beijing to stem speculation and slow capital flight as the currency weakens.
Financial authorities have asked banks in coastal cities not to let outflows from yuan-denominated capital pools exceed the size of those pools at any given time, the people said, which would lead to net negative positions.
The regulators also ordered banks to conduct strict checks on corporate business and transactions affecting those yuan capital pools, the people said.
The moves do not necessarily represent a closing of China’s already controlled capital account, as legal channels for outward investment by companies and individuals remain open, but are more targeted at quick-moving speculative fund movements.
“New requirements clearly state that cross-border renminbi (yuan) lending will be strictly investigated so as to prevent companies from making use of such lending to conduct cross-border arbitrage,” said one source close to the regulators.
It is unclear whether the policy will be implemented nationwide or will remain targeted at coastal banks, where much of the capital supporting the export trade is concentrated.
The people declined to be identified because they are not allowed to speak to the media.
The State Administration of Foreign Exchange declined to comment and the People’s Bank of China did not respond to Reuters’ request for comment. Repeated calls to the central bank were unanswered.
China’s central bank and commercial banks sold a net 629 billion yuan ($95.61 billion) worth of foreign exchange in December, data showed on Monday, or nearly triple the amount in the previous month, as capital outflows grew.
“While currency-related tightening steps reported so far may not individually have a huge impact on capital flows, their combined strength will be huge,” said a foreign exchange dealer at a Chinese commercial bank in Shanghai.
“It’s clear that the government is now determined to choke widespread expectations of steep yuan depreciation.”
Beijing is also planning to look into entrepot trade in the country’s port cities, and is possibly conducting major investigations into illegal cross-border capital flows masked as trade transactions.
Some economists suspect China’s surprisingly positive December trade figures were artificially inflated by such activity.
Regulators are also considering additional steps, the sources said, such as allowing direct cross-border yuan and foreign currency loans that could help narrow any gap between the offshore and onshore exchange rates, making arbitrage less profitable.
($1 = 6.58 Yuan)
Reporting by the Hong Kong Newsroom; Writing by Pete Sweeney and Lu Jianxin; Editing by Kazunori Takada and Sam Holmes
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