China will
step up its crackdown on illegal foreign exchange deals this year as
authorities boost authenticity and compliance checks on trade and investment,
its forex
regulator said on Wednesday.
Beijing has
announced a series of measures since November to tighten capital outflow curbs,
including closer scrutiny of outbound investments and individual foreign
exchange purchases, to support the yuan and preserve its foreign exchange
reserves.
The State
Administration of Foreign Exchange (SAFE) said in its annual report that it
will "strengthen authenticity and compliance checks on trade and
investment, intensify checks and punishment of illegal foreign exchange
activities".
Authorities
will also improve macro-prudential management on cross-border flows to ward off
potential risks and "optimize" diversification of foreign exchange
reserves to serve China's strategic goals, SAFE said.
China was
likely to maintain a current account surplus and a deficit in capital and
financial accounts in 2017, and cross-border capital flows would become more
balanced, it said.
"On the
one hand, the international environment is unstable, there are many uncertain
factors that could cause market sentiment changes and cause fluctuations in
China's cross-border capital flows," the regulator said.
"On the
other hand, some factors are conducive to balanced cross-border capital
outflows and inflows," it said, pointing to favorable factors including
China's economic stabilization and government policies to boost foreign
investment inflows.
Moves to
control capital outflows and concerns over a potential further depreciation of
the yuan were likely to impede the internationalization of the yuan, Fitch
credit rating agency said.
China's
overseas investment yields would likely increase this year, SAFE said.
From 2005 to
2016, China's foreign financial assets had an average annual investment return
of 3.3 percent, lower than average annual rate of return of 6.4 percent enjoyed
by foreign investment in China, it added.
The current
account surplus, which was equivalent to 1.8 percent of gross domestic product
(GDP) in 2016, was likely to be kept within a "reasonable range" this
year, the SAFE said. The ratio was down from as high as 10 percent in 2007.
China would
also push forward with its market-based yuan exchange rate reform and increase
the yuan's flexibility in 2017, the regulator said.
The yuan
CNY=CFXS has stabilized this year, due to curbs on capital outflows and a
reversal of the dollar rally, following a fall of 6.5 percent in 2016. Still,
it is widely expected to weaken further versus the dollar this year.
*Reuters*
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