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Categorized | Currencies

Markets digest news of China capital controls over lunch

Posted on November 29, 2016

Investors may keep a cautious eye on Chinese markets this afternoon following reports Beijing is poised to tighten capital controls and restrict the flow of outbound investment from the mainland.

Further restrictions could have implications for companies and individuals keen to purchase assets offshore.

The likes of Anbang, HNA Group, Fosun and Dalian Wanda have spearheaded an overseas shopping spree by Chinese companies in recent years. As well as potentially tempering their international ambitions, it could also slow the ability of fast-growing tech companies to hunt targets overseas, such as Chinese appliance maker Midea’s €4.5bn offer for Kuka, a German robotics maker, earlier this year.

As China’s stock market paused for its mid-session break, news of imminent tightening of capital controls by China’s foreign exchange regulator emerged.

A Bloomberg report citing unnamed sources as saying the State Administration of Foreign Exchange was withholding approval of outbound investments for investors with remaining quota of $50m or more and requiring prior approval from government agencies on foreign exchange transfers of $5m or more.

South China Morning Post, also citing unnamed sources, likewise referred to a $5m threshold above which overseas payments would require clearance from Beijing and cited a document referring tighter controls on outbound investment slated to start from September 2017.

Indices tracking mainland companies listed in Hong Kong showed signs of selling off following the reports, but any direct link is not immediately clear. The Hang Seng China enterprises index was down 0.1 per cent, while the Hang Seng mainland index had swung from positive territory to be fractionally lower.

The renminbi is one-third of 1 per cent stronger at Rmb6.8921 per dollar. The offshore renminbi, which trades outside the mainland and is not subject to a trading band, was 0.2 per cent stronger today at Rmb6.9153. The two rates firmed as the US dollar weakened today, but were relatively steady as reports of the capital restrictions emerged.