December 8, 2016 / 1:58 PM / 3 years ago

China checking outbound investment deals amid forex crackdown: Xinhua

BEIJING (Reuters) - China has begun checking some outbound investment projects as part of a crackdown on illegal cross-border currency deals, Xinhua news agency reported on Thursday, citing a foreign exchange regulator.

Chinese flag waves in front of the Great Hall of the People in Beijing, China, October 29, 2015. REUTERS/Jason Lee

Beijing has announced a string of measures recently to tighten controls on money moving out of the country since its yuan currency CNY=CFXS skidded to more than eight-year lows.

Authorities will target new companies that have invested overseas but are not believed to have real businesses, and firms deemed unable to sustain overseas operations, an official at the State Administration of Foreign Exchange (SAFE) told Xinhua.

They will also check overseas investment projects unrelated to parent companies’ main business operations, and firms suspected of obtaining yuan funding via “abnormal sources” and illegally moving assets overseas, the SAFE official said.

Authorities will guarantee “real and reasonable demand” for foreign exchange for investing overseas while cracking down on fake investment activities, the official said.

The SAFE has begun vetting transfers abroad worth $5 million or more and is increasing scrutiny of major outbound deals, even those with prior approval, sources told Reuters last week.

China will also rein in risks from “irrational” outbound investment deals, Xinhua said on Tuesday, quoting a variety of officials.

Authorities have found cases of individuals using others’ foreign exchange quotas to engage in illegal cross-border currency deals, said the official. But capital outflows were under control in November, despite a rise in foreign exchange buying by individuals, the official added.

“At present, we do not find a surge in willingness among enterprises and individuals to buy foreign exchange,” Xinhua quoted the official as saying.

China’s foreign exchange reserves remain generally ample and the country’s financial system remains sound, the official said.

China’s foreign exchange reserves declined far more than anticipated in November to the lowest level in nearly six years, as authorities struggled to stem capital outflows and shore up the yuan in the face of the relentlessly rising dollar.

Reporting by China monitoring desk and Kevin Yao; editing by Mark Heinrich

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