Renminbi Series: China curbs gold imports to contain outflows

Earlier this week, news came out that Chinese Authorities are readying rules to pose restrictions on outbound foreign investment in a bid to curb record outflows of the dollar from the economy. The move comes as the Dollar regained its bullish momentum after Donald Trump’s victory in the US election that pushed the expected hike path from the US Federal Reserve to a steeper trajectory. Chinese officials would scrutinize purchases of more than $1bn if they were outside the investor’s core business. According to reports, State Administration of Foreign Exchange (SAFE) would start vetting cross-border money transfer worth $5 million or more, compared to the previous level of $50 million. In the first 10 months of this year, outbound investments reached $146 billion, after a total of $121 billion last year.

In the first three quarters of this year, Chinese investments in Europe were three times higher than the inbound investments from the region. China’s outbound investments in the US surpassed the inbound investments from the US for the very first time ever.

Today reports came out that Chinese authorities have curbed gold imports to clamp down on dollar outflows. As the Yuan dropped to lowest level since the financial crisis of 2008/09 and declined close to 6 percent this year, authorities are weighing measures to reduce outflows. The higher demand for gold in China, along with tighter quotas has pushed gold prices in China higher than international prize by as much as $46 per troy ounce, compared to normal levels of just $3 per ounce.

These protectionist measures are in sharp contrast to China’s effort to the liberalization and Internationalization of Renminbi.