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China's vast foreign exchange reserves in 2016 fell below $3 trillion for the first time in six years, as the authorities spent heavily to prop up the value of the yuan and cut down on outflows.

Finance

China shuts down $7.3bn illegal forex operation

China’s vast foreign exchange reserves in 2016 fell below $3 trillion for the first time in six years, as the authorities spent heavily to prop up the value of the yuan and cut down on outflows/AFP

BEIJING, China, Feb 28 – China said it has broken up an underground banking operation that conducted $7.3 billion in illegal foreign-currency transfers, trumpeting the bust as a sign of its resolve in stemming massive capital flight.

The State Administration of Foreign Exchange (SAFE) said in a statement late Monday that it had investigated six companies suspected of illegal forex transfers in the southern city of Shenzhen.

An unspecified number of other firms were found to have used false documentation, fabricated trades, and other methods to funnel money out of the country, the forex regulator said.

These include “ant moving” the process of transferring large sums of money out in small portions to avoid detection.

SAFE vowed that this year it would “strengthen foreign exchange market supervision and seriously attack foreign exchange violations in order to protect China’s international balance of payments.”

“At the same time, (we) will increase policy transparency and promote financial markets’ opening to the outside world.”

A huge wave of overseas investment last year by Chinese companies seeking better returns abroad prompted the government to rail against “irrational” spending.

It began rolling out a series of restrictions on overseas money movements as leaders grow increasingly concerned over capital flight, slowing domestic economic growth and a weakening yuan currency.

China’s vast foreign exchange reserves in 2016 fell below $3 trillion for the first time in six years, as the authorities spent heavily to prop up the value of the yuan and cut down on outflows.

At the same time, the government has announced loosened restrictions on foreign investment coming into China to help stimulate economic growth and attract inflows.

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In February, SAFE approved $89.2 billion in investments by Qualified Foreign Institutional Investors in the country’s onshore financial market as of February 24, it said, up from $87.31 billion in January.

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