China’s top forex official says it will not close down capital account
Moves to curb outbound investment are selective and aimed at reining in “irrational” overseas spending, says head of foreign exchange regulator
The opened window won’t be shut again and China will not return to the old path of blocking flows of cash out of the country, the head of China’s foreign exchange administration said in an interview published on Monday.
Pan Gongsheng, the chief of the State Administration of Foreign Exchange and a deputy governor at the People’s Bank of China, told the China Business News that the regulator’s efforts to curb some overseas investments were selective and aimed at restricting blind and “irrational” outbound investment.
The lengthy newspaper interview was an apparent move to sooth concerns about China’s foreign exchange control measures.
The authorities have launched a series of actions in recent months to curb capital flight from the country to support the weakening value of the nation’s currency against the dollar, plus introducing measures to bring in more foreign investment.
Pan said China was trying to learn lessons from mistakes made by Japan in the 1980s.
“Blind overseas acquisition has dear lessons in history,” he said. “In the mid-1980s, Japanese companies conducted a shopping spree to buy landmark buildings in the US ... but big problems emerged.
“Blind cross-border acquisitions deals are like grabbing sand - it seems that you’ve grabbed a lot, but all sand will eventually slip from your fingers,” Pan said.
Pan also denied in the newspaper that China had changed its policies, making it harder for foreign firms operating on the mainland to send profits home.
However, in practice, foreign businesses may find it more troublesome because banks are required to be stricter in checking the paperwork to send money out the country.
China’s foreign exchange reserves have kept falling, despite stricter controls on outbound investment.
They fell below US$3 trillion last month, the lowest level since February 2011.
China’s reserves have shrunk by about US$1 trillion compared with a peak in June 2014.