China's central bank allows more RMB out of border

China's central bank announced Thursday that both Chinese citizens and foreigners will be able to carry as much as 20,000 yuan (2,421.30 US dollars) into or out of the country as of Jan. 1, 2005.

This is a sharp increase from the current 6,000 yuan (726.4 dollars), set in February 1993.

A spokesman for the People's Bank of China, the central bank, said that the increase will cater to the needs of China's economic development and overseas exchanges. A stable, strong yuan contributed to the policy change, the spokesman said.

China's economy grew quickly from 1993 to 2004, stimulating spending by the Chinese people, while overseas exchanges have been continuously expanding, he said.

Both the number of foreign tourists and their spending in China have grown quickly, while an increasing number of Chinese are going out for travel, business tours and study.

In addition, after Hong Kong and Macao returned to the motherland, the demand for renminbi has been on the increase there. The yuan is also accepted at China's borders with countries such as Russia, Mongolia, Vietnam, Myanmar and Nepal.

The central bank spokesman said that credit cards, remittance or cheques are sometimes inconvenient for consumers due to a lack of business outlets.

He said the loosening of the renminbi limit has minor possibilities of impairing the domestic economy.

"We have signed settlement agreements with banks based in Hong Kong, Macao and some neighboring countries, which will ensure the flow-back of renminbi," he said.

At present, money in circulation accounts for a slight 8 percent of the country's total money supply -- the proportion is still diminishing. The ratio of renminbi circulated overseas to money supply is even smaller. "So, the impact (of the central bank decision) on the domestic economy would be very little," he said.

"We view this move as a positive, albeit small, step forward in the process of removing foreign exchange controls and opening-up the economy," said Liang Hong, China economist at Goldman Sachs (Asia).

"Besides Chinese consumers, the main beneficiaries of this policy change will include Hong Kong and Macao consumer related industries, including banks, as Chinese tourists visiting these economies will be able to legally bring more cash to spend," she added.

China's sustained and rapid economic growth in recent years has raised the publicity of its currency in neighbouring nations and regions, making it a major settlement currency for border trade with nations like Russia, the Republic of Mongolia and Viet Nam.

And only the new ceiling can meet the overseas spending needs of the majority of increasingly wealthy Chinese travellers, the PBOC spokesman said, adding that average spending by local residents more than tripled since 1993.

Economists largely ruled out possibilities that the move is aimed at reducing the persistent upward pressure on renminbi, or any attempt to promote the regionalization or internationalization of the local currency.

"Policy changes to allow easier currency outflows will have limited, if any, impact towards easing the Chinese yuan appreciation pressures at the present," Liang said.

"The purpose is to meet the needs of local residents and economic exchanges within the region," said Qin Chijiang, a professor with the Central University of Finance and Economics. "I don't think there is any special political motive."

Qin underlined the need to build bilateral mechanisms with neighbouring countries and regions to channel the renminbi back to China.

The PBOC spokesman said there is only a tiny possibility that the loosening will have any negative impact on the Chinese economy, citing the small share of overseas-circulating renminbi in the total money supply and the arrangements with Hong Kong, Macao and some neighbouring countries on flowing the renminbi back home.

The central bank spokesman also vowed to beef up anti-laundering efforts by watching more closely on suspectable funds and cracking down on underground money shops and illegal cross-border money flow, as well as counterfeit notes, while cooperating with anti-laundering authorities with neighboring countries and regions.

By People's Daily Online