Money Outflow from China and Problem-Solving Strategy

Money Outflow from China and Problem-Solving Strategy

China contends trade war tensions that have eased and economic woes but shows no sign of ending altogether. So, Beijing is stepping up the battle to stop money flowing out of China.

China-US

According to analysts earlier this year, through unauthorized channels, money was leaving the country at a record clip. China needs to keep its financial reserves high. To maintain confidence in its markets and the news mentioned above is inadequate for China.

Four years ago, the financial scare sapped Chinese money reserves by hundreds of dollars. Now Chinese officials are trying harder than ever to avoid the repetition of the situation.

A key government regulator, the State Administration of Foreign Exchange, said Sunday that it is a most critical job. They want to crack down on illegal trading activities, “abnormal” capital flows across its borders, and prevents significant financial risks next year.

Furthermore, SAFE said in a statement that for defusing financial risks and maintaining market stability, they need to fight a critical battle.

The promise was an unusually strong one for the agency. It deployed the kind of military language more often used by top leaders in China.

Cracking down on capital flight is already started by the agency. The agency fined Chinabank Payments $4.2 million because of moving money overseas. The fine is one of the largest-ever penalties SAFE has imposed. Usually, China calculates fines based on the amount of money in question. The regulator didn’t say how much money transferred. But most probably the number was tens of millions of yuan.

A subsidiary of billionaire Richard Liu’s JD.com (JD), the online payments firm, told CNN business that the transfers occurred through “external merchants.”

They took advantage of loopholes. It will reflect on its management and said it felt “deeply sorry.”

 

Respond from China’s Government

China Government

Ones linked to the flight of money out of China aren’t only significant corporations. BACHF (a Bank of China) customer took out $50.000 in cash from his bank account over a week earlier this month. There is a government rule limiting how much foreign currency people can take out from their accounts within a short period. Deriving from this, SAFE fined the bank nearly with $6,000 for breaking the rule.

The action from the government symbolizes how far the government is willing to go to tack down on such withdrawals, although the amount of the fine was small.

The chief economist for the Asia Pacific at Natixis Bank, Alicia Garcia Herrero said that controls on outflows are increasingly tight.

From concerns about China’s economy, the threat of fleeing capitals comes. The fleeing money has been hurt by a prolonged trade war with the United States and domestic cooling demand.

To help the country to counter the impact of higher US tariffs on its exports, the People’s Bank of China also allowed the yuan to weaken. From the begging of the trade war, the currency has depreciated by around 12% against the US dollar.

Currency is weak. So, there is a higher probability that people will try to move money out of the country.  

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