To "Prevent Public Panic", Beijing Orders Banks To Keep Capital Controls Secret

Tyler Durden's picture

China is so concerned about the ongoing surge in capital outflows that its forex regulator, SAFE, has taken the unprecedented step of ordering banks to keep its instructions about curbing capital outflows secret and also to ensure that research analysts do not publish any negative views about the yuan according to Reuters.  According to bankers from local and foreign banks, both demands are seen as an attempt by the authorities to prevent alarm that could trigger further declines in the yuan. 

With the yuan losing 6% of its value against the dollar last year as a result of hundreds of billions in official outflows (and as much as $1.1 trillion in unofficial since August 2015 according to Goldman calculations), Beijing has unleashed 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. Overnight, the PBOC even unveiled probed into bitcoin exchanges, sending the digital currency plunging over 20%.

Reuters reports that SAFE, which is part of the People's Bank of China, is insisting, orally, that dozens of bank don't reveal its role in such restrictions, which was damaging their relationships with clients since they were unable to explain why they were turning away business. 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.

As a reminder, while in the US, the real  Fake News is anything having to do with relations between Trump and Russia; in China fake news mostly focus on the economy and the currency (as well as virtually everything else).

"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.

Additionally, SAFE had told 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, i.e., it was to be kept secret. 

"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.

* * *

While 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, 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 ave 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 program 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.

* * *

In short, China has implemented full blown capital controls, without wanting its population to know it has done so, which is understandable: fear of the unknown would lead to panic, would lead to more selling, and more panic and so on. But what we find delightfully ironic is that China is cracking down on the internationalization of its currency, just months after the IMF made the Yuan a fully "respected" member of the SDR - a token of how "liberalized" the currency is. As usual, trust Christine Lagarde to get it dead wrong.

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max2205's picture

I won't tell if you don't 

barndoor's picture

Is there a new website somewhere where the old Zero Hedge crowd (circa 2012) goes to read original, thoughtful posts on the economy and financial system?

I’m getting a little tired with all the dumb bullshit here now.  I prefer the company of people with a full compliment of 46 individual chromosomes. 

bugs_'s picture

a secret chinese zerohedge master server located on a fake island

Bill of Rights's picture

Oh, your not a member of the secret forum? Sucks to be you.

barndoor's picture

Nope - I'm here with all the stupid people.  I guess I didn't get the memo.

nmewn's picture

You don't find communist governments colluding with state controlled bankers admonishing them to say nothing to the peeps (as communist leaders & bankers seek their own monetary safe havens) financially interesting?

What moar is there to say?...lol.

Never One Roach's picture

How can they keep it a secret when everyone there knows?

 

Many are trying to get some of their money out for their kids college, to buy a house, etc and they run into a brick wall from what I read.  Crazy stuff going on there. Commies sneaking loot out to buy $10 million houses in Hongcouver and SF while they lock the peasants and middle class in tight.

TradingTroll's picture

Chinese New Year is Jan 28/17. Many Chinese take vacations, travel overseas, make investments. Holidays in April, May and October also see outflows.

The government is trying to get ahead of the problem

techpriest's picture

One of the side benefits of hosting visiting students is picking up on trends like this. Most Chinese are finding out by trying to wire money to their kids over here to buy them something expensive, like tuition + car, and suddenly are told that the old wiring service was shut down, or the bank has new limits, etc.

Those who have more knowledge are trying to get everything out as fast as possible. Mao's mass theft is still in generational memory, and it's expected that Xi will do the same thing if the situation is desperate enough. I am also figuring that there will be "banker suicides" among mid-level bankers at state-owned banks that were being told to authorize a bunch of no-questions-asked loans for questionable companies.

An unintentional benefit for the kids of the very well-connected is that having less money over here means no Escalade, which will make them less of a target when the recession goes public. I never liked that particular branch of Chinese though - they tend to either be bratty and annoying at best, and a few are full-on Pizzagate types.

Bay of Pigs's picture

He's been here less than three years yet is talking about 2012.

Something doesn't add up?

nmewn's picture

A sleeper-troll...lol.

He's bouncing around the threads between being a defender of CNN to clogging up a thread about the Chi-Com governments unappealing habit of making the Joe Chung's in that country bagholders.

Pretty transparent ;-) 

peddling-fiction's picture

They MK'd a troll and he just woke up to this barndoor alter. Chuckle.

barndoor's picture

I'm not a defender of CNN.  There is no post here where I defend CNN.  I just think it is stupid for a president to be rude to a CNN reporter on TV.  I'm simply amazed that so many people here can't admit to themselves that Trump is, at the very least, an obnoxious asshole.  Maybe he'll enact some decent policies - who knows?  But he is definitely a rude asshole.  

waist-down-naked's picture

Probably, you're old enough to remember bombing of Serbian national TV centre in Belgrade in the end of nineties. And that the target marker for bombers was placed on it by a CNN "journalist". Or Chinoise embassy in Belgrade at that time – destroyed by american rocket, targeted at the marker placed by a CNN "journalist". Guess, being rude to an employee of such an organization is a righteous deed, as Trump hasn't done anything like that.

Manic by Proxy's picture

Yep. He is a rude asshole. CNN has earned rude treatment, along with the lame stream media, for wholesale falsity publicizing and obfuscating truth. These organizations deserve our scorn and revulsion. Trump's treatment is appropriate, if discomfiting. 

barndoor's picture

I've been coming here at least 5 days a week since this article was published in August of 2011:

http://www.theglobeandmail.com/report-on-business/streetwise/who-is-zero...

 

NobodyNowhere's picture

Stay here.  There is safety in numbers.

Tarshatha's picture

"I’m getting a little tired with all the dumb bullshit here now.  I prefer the company of people with a full compliment of 46 individual chromosomes."

 

You're looking for Milliondollarbonus. Be patient, he'll grace us with his wisdom soon enough.

 

Edit: While you're waiting, why not kick back and listen, I've cued it up just for you.

https://youtu.be/qns7yS6U9kQ?t=216

No Zbig Deal's picture

Although I found this article interesting, I agree with your general sentiment. Ever since the server change and banning of certain_folks, this site has degenerated. I have cut down on ZH (maybe 300+/days a year to 150+ now).

I will admit that I frequently learn more from the comments than the article, but you need a fine-toothed comb. Used to lurk for about 3 ears w/o an account, and still never comment.

Cheers!

barndoor's picture

Thanks NZD - I was beginning to think it was just me.

svs9000's picture

The cats out of the bag now!!!

Since it's China...into the frying pan next, right???

OutaTime43's picture

How can a currency that's pegged to the dollar fall 6% against it?

DarkPurpleHaze's picture

It's got to be a significant amount and a real concern if they need to resort to this.

bugs_'s picture

a complimentary golden shower for every new account

McDuff71's picture

...it's impossible to stop the rot - Yuan/USD is at least 20% overvalued at the moment-  needs to be allowed to float to fair value..how the heck did this get added to IMF basket when it's clearly a basket case at the moment??!?!?!....this form of Govt interference is hugely damaging for the confidence of the broader market not to mention wealth destrying for the average mum and dad who is even speculating in the commodities markets for gods sake...utter madness that is not going to end well (already playing out)...

tarabel's picture

 

 

Open the bank vault doors, HAL

I'm sorry, Dave, I can't do that.

Monopolist's picture

Alright HAL, I am gonna get the money out through the Bitcoin door

I am afraid that would be difficult without your SAFE hemlet, Dave.

HRH Feant's picture

This is how communism fails. They want to control everything and end up lying. Revolution in China in 3, 2, 1 boom!

Rebel yell's picture

Because nothing is more sedating and reassuring than opacity!

GreatUncle's picture

If China can't get enough greenbacks it has to print .

For a long time that income was easy to get, not so now when the west turned off the money tree.

VWAndy's picture

 Team fiat might be alot bigger then some would think.

bigkahuna's picture

Sell some more treasuries - convert to your mao ze tyrant asshole reminbi and get on with life. That will be a 180 million mztarmb consulting fee assholes.

Bay of Pigs's picture

I thought BTC was supposed to soar when shit like this happened? Whoops!

https://www.google.com/amp/s/amp.businessinsider.com/bitcoin-price-janua...

Kagemusho's picture

Maybe Harry Dent got mixed up about what was going to go below $1K. Physical BTC looks like gold. http://cringely.wpengine.netdna-cdn.com/wp-content/uploads/2013/09/bitco...

Maybe he needs a new phone psychic or something...

business as stusual's picture

If you take a look a a multiyear chart of btc, you will note that there is, more often than not, a significant downturn before the next leg up. From about July/2015 there is a very noticable pattern of this significant decline, followed by a new high. I am not a btc pumper, I just got involved about 3 months ago. I think that there is a place for btc as an asset, with a reasonable exposure (15%). I also think that btc will be VERY VOLATILE for quite some time. 

Definitely not for the faint hearted.

Kagemusho's picture

As always, lots of Chinese buying BTC tonight. Nothing new there. What's unusual is that the US is also picking up steam. Nowhere near as much as China, but it's noticeable. 

 Euros and Brazilian Reals and South African Rand are in play, too. Somebody is nervous, and not just the Chinese.

Dragon HAwk's picture

Good thing bankers can keep a Secret... Wink Wink..

SumTingWongJr's picture

Don't the the common folks, they may panic.

Kagemusho's picture

While the Chinese Communist Party heads are threatening banks for giving accurate appraisals of financial risks associated with Yuan devaluation,  they're getting their own ill-gotten gains out of the country via BTC and other means. Currency controls are for the less equal animals in the Orwellian animal farm known as Communism.

monad's picture

Do not rob the hand that feeds you.

RedDwarf's picture

Prices are information.  Everyone needs them to guage risk and to take a reading on what is happening.  Prices are signals of where capital is needed, and where it is mis-allocated.  Prices are the roadmap, the chart, the compass.  Without them people make random and destabalizing decisions.  The country becomes a ship in a rocky sea in pitch darkness.  Eventually it will end badly.

In other words, China is flying blind and they keep compounding their mistakes, and so they are fucked.

laomei's picture

most if not all banks are now closing and refusing to reopen the ability for chinese over the age of 60 to wire money overseas.  

they are also monitoring destination accounts and any matching information is triggering a freeze on funds until "fines" are paid.

 

They have under $1t left and then it's game over.  China can keep pretending all they want to, but once reality hits that's the end of it.  One day they will keep claiming $3t, but the banks will be out of funds and all wires will be denied.

patriotinCalif's picture

Trump will get our money back from the Chinese (500bn/yr) and they know it. The Chinese economy is an illusion - propped up. All that will change. I am looking forward to it.

MAGA