China tightened its checks on personal forex purchase

The SAFE introduced new administrative requirement for personal foreign currency purchase in China. Specifically, an extra form filling process is now required to declare the purpose of the foreign currency purchase. There is no change to the annual 50k USD FX purchase quota.

? We expect strict implementation of the new requirement and strong reinforcement by the SAFE and all of the commercial banks.

? Combined with the tightening rules on corporate’s ODI, we expect these measures to help ease some of the pressures on China’s FX reserves.

? However, with monetary policy still too loose and Chinese asset diversification rate still low, capital outflows are likely to continue. We maintain our forecasts for USDCNY to rise to 7.33 over the year ahead.

Tightening checks on personal FX purchase procedure The SAFE introduced new administrative requirement for personal foreign currency purchase in China. Specifically, an extra form filling process is now required to declare the purpose of the foreign currency purchase. There is no change to the annual 50k USD FX purchase quota.

In addition to the extra form filling requirement, the PBoC has also tightened the regulation on all of the bank transactions broadly in an announcement made earlier. Some of the elements effectively tightened the FX transaction too. For example, financial institutions have to report to the Center of anti-money laundering for “onshore transactions between individual account to other accounts if the amount is above US$100k equivalent per transaction or per day”. The reporting threshold is set at US$10k for cross border transactions.

May help ease pressures on FX reserves in the short term This follows a series of measures towards corporates’ outward. Combined with recent NDRC’s pledge to attract more foreign investment, we think the message is clear that the top authority in Beijing is paying substantial attention to FX reserves and CNY dynamic. However, the key risk is that participants may be able to find other loopholes if there is underlying need. Recent experience in other areas, e.g., shadow banking, suggests that players tend to find new channels fast, too. Over the longer term, the fact that Chinese households still have little relative allocation to overseas assets would be one of the key factors for more overseas allocation, and an increase of income per capita tends to suggest more demand for global services, too. On the other hand, successful reforms in the domestic economy, if they take place, will help China to attract more FX inflow.