People buy above $50,000 annual limit through illegal channels: sources
Financial analysts said the depreciation pressure on the yuan and a weak domestic economy has compelled more Chinese to convert the yuan into foreign currency since August 2015, media reports said, with some buying more foreign currency than the annual quota allows from illegal financial institutions.
The People's Bank of China (PBOC), the country's central bank, set the midpoint rate at 6.6528 per dollar on Tuesday, down 0.23 percent from the day before, falling for the third consecutive day, PBOC data released on Tuesday showed.
After UK citizens voted to leave the EU, global financial markets suffered their worst shock since the 2008 financial crisis, domestic newspaper Securities Times reported on Tuesday.
On Monday, the PBOC lowered the reference rate to 6.6375 yuan against the dollar, down 0.91 percent from the previous 6.5776, the biggest percentage decline since August 13, 2015, according to the report.
The Shanghai branch of the State Administration of Foreign Exchange (SAFE) reiterated on Tuesday that the current policy on individuals converting the yuan to foreign currency remains unchanged.
Individuals with an ID can freely buy $50,000 worth of foreign currency every year, said a statement posted on the PBOC's website on Tuesday.
"I want to buy more foreign currency. But I bought $50,000 worth in May, the maximum everyone with an ID can buy every year from Chinese banks," a white-collar worker surnamed Liu told the Global Times on Sunday.
Liu is not the only one keen on buying foreign currency. One of his friends bought foreign currency worth $600,000 in March.
"My friend did this through illegal private banks because the $50,000 limit is too small for him," Liu noted.
"More clients bought foreign currency from our bank in June compared to the start of 2016," a staff member of the Beijing branch of Shanghai Pudong Development Bank, who requested anonymity, told the Global Times on Sunday.
He said that bank clients would like to buy foreign currency through e-banks.
An anonymous staff member of Industrial Bank also said on Sunday that the number of clients buying foreign currency has picked up since the second half of 2015.
For as long as there's depreciation pressure on the yuan, the Chinese people will be inclined to set aside part of their savings for foreign currency assets, Liu Dongliang, a senior analyst at China Merchants Bank, told the Global Times on Sunday in a telephone interview.
Many people in China may be panicking over the yuan's depreciation, Liu Xuezhi, a senior analyst at Bank of Communications (BOCOM), told the Global Times on Sunday.
On August 11, 2015, the PBOC adjusted the yuan's central parity against the dollar, making it more market-oriented and set the yuan's value to the exchange rate movement of a basket of major currencies.
But the yuan depreciated against the dollar to 6.4010 on August 13, which strengthened fears of further depreciation, eeo.com.cn reported in August 2015.
As China's economic growth slows, some people may want to transfer their assets overseas, the BOCOM analyst said.
"My friend transferred $600,000 in foreign currency to the U.S. because he plans to move to the U.S., but I just want to invest in some dollar-denominated assets," the white-collar worker Liu said.
In addition, traveling and studying overseas also contributes to the substantial rise in foreign currency transactions, he noted.
In 2015, 120 million Chinese traveled overseas and spent a combined $229 billion, up 38.9 percent from the previous year, according to a report posted on the website of the China National Tourism Administration in January .
Gloomy forecast
Since the 2015 reforms, the SAFE has imposed stricter controls on foreign currency transactions to prevent bulk transactions, Liu said.
Starting January 2016, the regulation states that individuals should not use other people's IDs in purchasing foreign currency.
In May, China's foreign exchange reserves fell by $27.9 billion to $3.19 trillion, its lowest level since December 2011, Reuters reported.
Liu predicts that the yuan may depreciate to 6.7 to 6.8 this year against the U.S. dollar due to U.S.interest rate hikes and uncertainties in the global market.
