SHANGHAI (Reuters) - Chinese regulators have asked several domestic funds to postpone issuing new outbound investment products, sources said, the latest attempt by authorities to stem capital flight which is undermining the value of the yuan and worrying global investors.
The country’s stock markets are down about 25 percent this year and the yuan currency has weakened after an unexpected devaluation in August, raising concerns about the strength of the economy and prompting Chinese to move more money offshore.
According to the Institute of International Finance, China posted capital outflows of $676 billion in 2015, when market turbulence set in and the economy grew at its weakest pace in a quarter of a century.
In the latest effort to control capital outflows, some funds have been asked to defer the launch of new products under the Qualified Domestic Institutional Investor (QDII) program, five sources with direct knowledge of the matter said on Thursday.
Although the sources said the request by the China Securities Regulatory Commission (CSRC) was characterized as a temporary one, no specific time frame was given.
Both the CSRC and the State Administration of Foreign Exchange declined to give immediate comment.
Other measures introduced to stem capital flight include tightening restrictions on money leaving China from banks in coastal cities and large interventions in the offshore yuan market in Hong Kong to push up the cost of speculation.
The QDII program allows Chinese banks, insurers and mutual funds to buy offshore stocks and other securities on behalf of clients, and is one of several ways Chinese firms and individuals can get money out of the country legally.
China’s capital controls otherwise place strict limits on the amount of money individuals and firms may move out of the country and for which purposes.
Still, many residents find other ways to do so, with cash ending up in foreign property, offshore life insurance policies that can be used as collateral for further loans and other assets.
A total of $90 billion in quotas has been granted under the QDII scheme, and although that amount has not been increased since March 2015, qualified institutions have continued to use their existing quotas.
Figures on how much of the quotas have been used are not disclosed.
The new guidance from the CSRC may not materially affect the scale of capital outflows via the QDII scheme, because most of the volume allowed is being used up already amid strong demand for assets overseas, investment fund sources said.
But the limit is a further signal to the market that regulators want to slow the flow of money out of China, which threatens to undermine efforts to cut the cost of credit domestically and reinvigorate flagging productive investment.
“Currently existing QDII products can still be issued and fund raised for, but those were approved a while ago. Recently applications for new product offerings have not been approved,” said a high-level customer service manager at one fund.
The QDII program was first introduced in the mid-2000s to provide a channel for a limited amount of Chinese capital to access foreign markets.
Reporting by the Shanghai Newsroom; Editing by Mike Collett-White