Across The Border | Beijing’s tightening of capital controls set to hurt Hong Kong’s financial sector

Beijing’s recent move to impose a cap on mainlanders using credit cards to pay for overseas insurance policies which are mainly sold in Hong Kong is seen as China’s latest effort to tighten capital controls to prevent hot money outflows as mainlanders flee a depreciating yuan.

Analysts widely belive more control measures will come and the trend would hit hard the local financial sector as Chinese have been the top buyers of stocks, funds, insurance and other investment products in the city.

Holders of UnionPay, the biggest card issuer in China, are barred from February 4 to spend more than US$5,000 to buy overseas life insurance policies. The cap came just a few days ahead of the Lunar New Year, a peak time for mainland tourists travelling to Hong Kong.

Christy Tan, head of markets strategy and research of Asia of National Australia Bank, said the credit card cap was part of recent moves by Chinese regulators to prevent mainlanders from using overseas insurance products as a way to bring money out of the country.

She said this followed other recent measures by the State Administration of Foreign Exchange (SAFE) which instructured banks in Shenzhen, a city right across from Hong Kong, to limit dollar buying by individual and corporate clients.

“China’s recent adjustment to capital flows seem to suggest the authorities are trying to constrain speculative hot money flows while leaving trade and direct investment flows relatively untouched. This probably explains the Chinese authorities’ focus on tightening the enforcement of existing capital controls,” Tan said in a research note.