China's forex regulator is telling
banks to keep its instructions about curbing capital outflows secret and to
ensure that research analysts keep any negative views about the yuan's
prospects to themselves, several bankers said.
Both demands are seen as an attempt by
the authorities to prevent alarm that could trigger further declines in the
yuan, the bankers from local and foreign banks said.
The yuan lost more than 6 percent
against the dollar last year and is at eight-year lows, prompting a flurry of
restrictive measures on capital outflows from the State Administration of
Foreign Exchange (SAFE), including setting limits on banks' currency volumes in
some cities or provinces and requiring approval for ever smaller transactions.
SAFE, which is part of the People's
Bank of China (PBOC), is insisting in oral instructions to dozens of banks that
they don't reveal its role in such restrictions, six bankers said, which was
damaging their relationships with clients since they were unable to explain why
they were turning away business.
SAFE and the PBOC have yet to respond
to requests for comment.
SAFE's reticence began at least as far
back as August, when its Shanghai branch called at least 20 of the major
foreign and domestic banks operating in the city to a meeting with the regional
heads of several SAFE departments.
A representative from an international
bank attending the meeting said there were no written instructions, but a
high-ranking SAFE official told them explicitly what was expected of them.
"You must control your forex
deficit, but you can't say that SAFE is controlling capital outflows," the
official told the bankers.
The banks were told to "manage
sentiment" to prevent public panic, the banker said, and the banks'
research analysts should not broadcast any negative views on the yuan.
"They told us not to publish bad
house views - analyst house views - on the yuan", the person said.
A second banker on the forex team of an
international bank said his bank had received the same instructions.
Where a bank has exceeded the SAFE-set
limits for forex transactions in a month, they have to turn business away, but
are unable to explain the real reason why, several bankers complained.
"We're not going to tell our
customers that (our forex business) has stopped; we just have to find ways to
turn down the business we're not allowed to do," said a banker at Chinese
Commercial Bank Ping An who had received SAFE instructions from seniors.
"It's not good for client
relationships," he added, explaining that he had told his clients to go to
other banks.
Ping An did not return requests for
comment.
PENALTY THREAT
In a verbal order to at least two
lenders, SAFE said it would vet all cross-border money transfers worth $5
million or more, down from $50 million, banking sources told Reuters in late
November.
They also told the banks to interview
clients to make sure the forex deals were not for fake transactions, or else
face punishment, according to two bankers at separate listed banks.
In response to those orders, one of the
banks sent an internal notice to employees, seen by Reuters, to alert them to
SAFE's requirements, explaining that the regulator's penalties could include
"cancelling business qualifications" needed for the lender to conduct
forex business.
The notice passed on SAFE's
instructions that staff should not mention the regulator.
"Please do not reply to clients
using wording such as SAFE controls, or SAFE doesn’t allow or strictly controls
FX purchases," it read.
Instead, they should adhere to the line
provided by SAFE, that the purpose of the changes was to "promote healthy
development of outbound direct investment" and "crack down on fake
deals", the notice added.
China's foreign exchange reserves fell
to $3.05 trillion in November from $3.3 trillion in the first 11 months of
2016, and many traders are betting there will be further outflows as U.S.
interest rates rises make dollar assets more attractive.
But SAFE wants banks to advise clients
to buy yuan and sell dollars, the international bank representative said, a
play that is likely to lose clients money.
"If a person doesn't have this
need, how am I supposed to encourage it?" the banker said.
At the same time, SAFE is quietly
choking programmes designed to open overseas markets to Chinese investors.
Even where institutional investors have
been granted quotas to invest overseas, they are finding it increasingly
difficult to exchange yuan into another currency.
"SAFE would tell you that you
still need to stand in the queue, and the waiting period is 'uncertain',"
said an executive at Shanghai-based China equity fund house Greenwoods.
An investment programme set up so
global funds can raise Chinese cash to invest overseas has ground to a halt
without explanation.
"The application process seems to
be in a state of suspension," Michael Lu, managing director of Greater
China Business Development of Dutch money manager Robeco told reporters in
November.
(Reporting by Samuel Shen and Engen
Tham; Editing by Anne Marie Roantree and Will Waterman)
No comments:
Post a Comment