China ‘stuck’ as rigid controls on capital outflows becoming harder to peel back
- China imposes a strict capital account system to control the yuan exchange rate, its international balance sheet and the size of foreign exchange reserves
- But the regime comes with risks, analysts say, including distorting supply and demand in the foreign exchange market and restricting investment in some areas
China’s onerous capital account controls were all too apparent for Oziter Mao during a recent trip to a state bank.
“It was so troublesome to transfer just a few thousand yuan out of China to Australia,” complained the mainland resident, who is preparing to travel overseas. “You need to pay a three per cent ‘administrative fee’, and there are requirements for the documents.”
Every Chinese individual is entitled to buy US$50,000 worth of foreign currencies per year, but capital controls have been tightened in recent years through operational details, new documentation to prove the purpose of exchange, and ad hoc reasons to reject large-scale transactions.
Yu Yongding, one of China’s most prominent economists, said last May that he had tried to buy US$20,000 and remit the funds abroad, but was rejected by his bank because he was above 65 years old – a policy that does not officially exist.