Shanghai regulator busts US$2.7b in forex transactions this year
Analysts expect crackdown to continue as authorities try to stem capital outflows
Authorities in Shanghai have intervened in illegal foreign exchange transactions totalling US$2.7 billion this year, as part of a crackdown meant to stem “irregularities”, the top foreign exchange regulator said on Wednesday.
It had teamed up with Shanghai police in exposing the illegal transactions, the State Administration of Foreign Exchange (Safe) said on its website. It added that it had suspended three banks from selling foreign exchange, for being involved in cross-border capital transfers via counterfeit trades.
The regulator did not name the three banks, nor did it disclose whether the suspensions had been lifted.
China has in recent months ramped up its capital controls in a bid to keep money in the country as the yuan dropped to eight-year lows.
Ren Zhiyi, a partner at law firm Fangda Partners, said authorities were signalling that they would continue cracking down on illegal transactions that bypassed capital controls.
“The crackdown on illegal deals, in both trades and outbound investments, will be put in place against the expectation of mounting pressure on a weaker yuan and a rapid drop-off in foreign exchange [reserves],” Ren said.
China’s foreign exchange reserves shrank to US$3.05 trillion as the end of last month, down from an all-time high of US$3.99 trillion in June 2014, triggering concerns that a too rapid reduction could undermine financial stability.
The yuan is freely convertible under the current account for trades, but authorities are showing a firmer hand in checking the authenticity of deals. They have also tightened checks on overseas investments and imposed rules to make it more difficult to bring yuan abroad.
The Shanghai branch of Safe last month told banks that approval from the authorities was required for cross-border payments exceeding US$5 million that are meant for overseas investment purposes, according to sources.