In a bid to counter the decline in overseas investments and tackle an economic slowdown, China has reiterated regulations ensuring unhindered cross-border money transfers for foreign enterprises operating in its pivotal cities. Effective September 1st, officials in Shanghai’s pilot free-trade zone and Lingang area have been instructed to guarantee that foreign investors can freely move their investment-related funds into or out of China, provided the transactions meet the criteria of being “real and compliant,” as stated by authorities in the financial hub.
Expatriates working for foreign companies based in these designated areas, including personnel from Hong Kong, Macau, or Taiwan, are now permitted, in accordance with the law, to transfer their salaries and other lawful incomes out of the country. The Shanghai notice further clarified that neither the currency type, amount, nor frequency of the remittances will face restrictions from any entity or individual.
Beijing has also unveiled plans for a comparable regulatory framework encompassing the entire city. Draft rules, released on Wednesday, are presently open for public feedback. Local officials have emphasized that these proposed measures are geared towards streamlining and encouraging foreign business investments. Furthermore, the capital city is exploring the possibility of exempting overseas firms from foreign-exchange registration requirements for their reinvestments.
This renewed emphasis on regulations governing the financial flows of non-Chinese enterprises coincides with President Xi Jinping’s administration intensifying efforts to reverse the decline in foreign investments. The State Council’s 24-point plan, unveiled in August, is designed to woo overseas firms with promises of improved tax incentives and streamlined visa processes for their employees.
According to a recent survey conducted by the American Chamber of Commerce in Shanghai, Western firms operating in China are expressing the most pessimism about their future prospects in decades. This sentiment is largely attributed to geopolitical uncertainties. Tensions with Western nations, combined with China’s economic deceleration, have catalyzed a staggering $188 billion exit from Chinese equities and bonds, marking a sharp decline from the peak recorded in December 2021 through the end of June this year. This exodus has eroded China’s influence in global investment portfolios.
Neo Wang, the Managing Director for China Research at Evercore ISI in New York, highlighted the coordinated nature of these moves, stating, “Faced with the general trend of foreign investors diversifying away from China, Beijing has every reason to slow down this pace as best as it can, especially given the current challenging economic situations.” He added, “These look like coordinated moves addressing an important topic that was omitted from the 24-point August guidance.”
China is currently grappling with its most significant capital flight in years, a development causing concern among authorities as it exacerbates pressure on the beleaguered yuan. The currency has faced headwinds on multiple fronts, with capital leaving its financial markets, global corporations exploring alternatives to China, and a resurgence in overseas travel impacting services trade. Official data underscores this trend, revealing a capital outflow of $49 billion last month, the largest since December 2015. This exodus, fueled by sluggish growth in the world’s second-largest economy and a widening interest-rate differential with the United States, has contributed to the yuan hitting a 16-year low. There is a palpable risk that accelerated outflows may further weigh on the currency, diminishing its attractiveness and potentially triggering additional capital flight, which could disrupt financial markets.
By reiterating regulations promoting unhindered cross-border money transfers for foreign enterprises, China aims to entice back companies and mitigate capital flight amidst ongoing economic challenges and investment declines. Authorities in Shanghai and Beijing are committed to implementing higher international standards, providing exemptions for foreign firms from foreign-exchange registration for their reinvestments, and facilitating the exchange of lawful incomes for foreign enterprises. The overarching objective is to cultivate a more hospitable environment for foreign companies on Chinese shores while staunching the flow of capital that threatens the nation’s weakened economy.
Source: Bloomberg
