China is readying new restrictions on outbound foreign investment in an effort to curb capital outflows that are putting downward pressure on the renminbi and draining foreign exchange reserves, according to people who have seen a draft of the rules.
Chinese money has been flooding the property investment market in recent times, in no short measure helped by the weak pound. Although the British property market is undoubtedly accounts for a comparatively small part of the foreign assets being bought by the Chinese, such investment has devalued the Chinese renminbi to such an alarming extent that the Chinese government started selling dollars from its foreign exchange reserves to try and ease the currency’s fall.As a result, the Chinese government are tightening restrictions on the foreign investment. Details are extremely sketchy at the moment and are (at least initially) likely to affect the highest value transactions. However, this is certainly an indication of the harm the Chinese money arriving on British shores is having back home. Politically, the tide seems to be turning against capital flight but we will not know the full impact the new regulations will have until more detail is released.