Why is US dollar access so restrained in China as trade war rages on?

This is the second article in a three-part series looking at China’s US dollar shortage risks in the trade war, as it aims to open up its markets.

While China’s capital controls have limited how much access its citizens have to foreign currencies at home, banks and companies are finding it harder to obtain US dollars as the trade war not only hinders the nation’s ability to earn dollar revenue from exports, but also foreign lenders’ willingness to supply the US dollar to a slowing economy.

China’s central bank has been picking up its rhetoric to assure the public that economic fundamentals and policymakers’ competence would ensure that both the safety of the nation’s financial system and the yuan’s exchange rate are well under control.

But Beijing’s decision to step up capital controls, a growing number of analysts have said, underscores the perilous state of the economy, which was also reflected by the recent reluctance of foreign financial institutions to lend to Chinese banks and the nervous behaviour of Chinese citizens.

“People are thinking if China’s future is so strong and stable, why aren’t we allowed to buy dollars?” said Michael Every, Asia-Pacific senior strategist at Rabobank. “The harder it is to get around the capital controls, the more people want to obtain dollars.”

The nation’s foreign exchange regulator, the State Administration of Foreign Exchanges (SAFE), allows every Chinese citizen to exchange and withdraw up to US$50,000 a year in foreign currency, either in a lump sum or in instalments.