A US$50,000 (C$67,000) annual cap on purchases of foreign currencies by Chinese investors will remain for 2017, even as China announced new currency oversight and rule changes in an attempt to back the yuan and slow capital outflows, according to media reports. China has been working to strengthen the yuan through a variety of policies, with estimates by the United States Treasury indicating that China sold over US$570 billion of its foreign currency stockpile between August 2015 and August 2016 to slow yuan depreciation, with the yuan still losing 7% of its value compared to the US dollar in 2016.
The Institute of International Finance reports that US$700 billion in capital left China in 2015, in no small part due to the weaker yuan, and China’s attempt to improve the yuan’s stability has led it to change the group of currencies making up China’s foreign-exchange basket, adding 11 new currencies while reducing the weight of the US dollar from 26.4% to 22.4%. This appears to be offering some reprieve for the yuan, with the trade-weighted yuan basket now at a four-month high, showing a rebound in these terms even as the yuan per dollar is at an eight-year low.
While these changes to the foreign-exchange basket may continue to strengthen the yuan, China is also implementing new regulations on outbound investors in order to keep more of its investment activity within China, with individual investors now having to fill out new forms explaining when they plan to invest overseas and for what purposes, and banks now having to report all overseas transfers by individuals of over US$10,000. Both a less than RMB50,000 (C$10,000) fine and an additional fine of 30% of the purchase amount will be imposed on those found breaking the new rules.
In turn, due to the January 1 reset of the US$50,000 foreign currency purchase cap, the upcoming swearing-in of a new American president, and banking service restrictions during the Lunar New Year days later, there may be additional pressure on the yuan as Chinese investors seek to move their money quicker than usual. The cessation of international real estate purchases, however, is unlikely, as Chinese buyers have been able to work around the US$50,000 cap in the past, although those with the means to do so may find it more attractive to invest through personal corporations, which face different rules than individual investors. In fact, one of the groups who may be most likely impacted may not be wealthy real estate investors, but less wealthy Chinese international students, as the additional paperwork and review period could hamper their ability to make payments in their host countries.