Chinese Authorities Urge Companies To Reduce Dollar Purchase And Other Foreign Currencies

Beijing takes further measures to discourage capital outflows amid a weak yuan

Provincial regulators have verbally directed a number of companies in coastal provinces to delay or reduce purchases of foreign currency in large quantities, especially US dollar, according to people familiar with the matter who requested anonymity.

Some companies were allocated a smaller quota to buy foreign currencies than planned, or were allowed to buy over a longer period of time, according to one of the people. Other companies listed abroad have been encouraged to transfer money for dividends in yuan, another person said, adding that such a move was not mandatory.

It is not clear how widely this directive is applied, or how it affects deals or transactions.

The State Administration of Foreign Exchange said in a written response to Bloomberg News that companies with foreign investments can ask banks to manage profit transfers or dividends, and these requests will be subject to compliance and health checks.

Dividend bills affect the Yuan

The State Administration of Foreign Exchange added that policies related to corporate purchases of foreign currencies were consistent and ensured that legitimate demand was met.

The State Administration of Foreign Exchange added that policies related to corporate purchases of foreign currencies were consistent and ensured that legitimate demand was met.

Dividend payment bills offered by Chinese companies to their overseas investors are also expected to impact the yuan in the coming months, as they typically involve converting the yuan into the Hong Kong dollar or other foreign currencies.

The guidance came after official data showed that Chinese capital outflows reached the worst level since 2016 last month, threatening to exacerbate yuan depreciation pressures. The currency underperformed most Asian peers this month, as faltering economic growth in China failed to boost yuan assets or deter residents and businesses from hoarding the higher-yielding dollar.

The yuan fell in the local market to its lowest level since November against the dollar this week, after optimistic US consumer confidence data strengthened the dollar and increased the justification for keeping the Federal Reserve in place interest rates higher for longer.