Move will curb money laundering, tax avoidance: experts
China's recently announced rules for overseas transactions using domestic bank cards comply with the country's overall regulation of financial markets and are also vital for fighting money laundering, illegal transfer of assets and tax avoidance, experts noted Sunday.
The State Administration of Foreign Exchange (SAFE) said in a statement on its website on Friday that China's banks will be asked to report on a daily basis their bank card holders' withdrawals in overseas countries and regions starting from September 1, as well as any bank transactions exceeding 1,000 yuan ($146.8).
Under the previous rules, China only measured the total amount of foreign transactions made by domestic bank card holders.
"With increasing requirements to fight money laundering, terrorist financing and tax avoidance, measures for cross-border transactions need to be enhanced in terms of trading transparency and quality of statistics," the SAFE statement said.
SAFE said that the new rules will not change the country's foreign exchange management policy and that it will continue to support and guarantee legitimate use of bank cards in foreign countries and regions.
"Consumers can use bank cards to withdraw capital in foreign countries and regions, which raises the possibility that some of them could launder money through falsifying consumption to withdraw money in overseas markets," said Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology.
Dong told the Global Times on Sunday that China's authorities do not know how much capital has been transferred to foreign markets by Chinese people through the use of bank cards. "The Chinese authorities restricted purchases of property and stocks in foreign markets, but plenty of people still do it. It is a large loophole," he said.
In recent years, the amount of overseas withdrawals has been quite large and there have been some suspect transactions, financial news website caixin.com reported Saturday.
For example, some jewelry and watch shops in Macao allowed tourists from the Chinese mainland to use bank cards to conduct false purchases and then converted the goods they bought into cash, the report said.
The new rules will help in preventing money laundering and illegal transfer of assets, Dong said, adding that it will also help curb tax avoidance by domestic outbound tourists.
"In previous years, domestic outbound travelers frequently avoided paying taxes on goods they bought in overseas markets," he noted.
Bank cards have become the major overseas payment tools for Chinese people. In 2016, transactions made by domestic bank card holders overseas surpassed $120 billion, according to the foreign exchange regulator.
The new regulation will apply to all kinds of Chinese bank cards, including debit and credit cards, and SAFE will protect the information privacy of the card holders, the statement said.
Capital outflow control
"From the start of 2017, China has tightened regulation of its financial markets, and the new rules are part of this," Liu Xuezhi, a senior analyst at Bank of Communications, told the Global Times on Sunday.
The new rules will also help prevent a large amount of capital flowing to overseas markets through consumption, according to Liu.
China strengthened its grip on capital outflows in late 2016 as the authorities ramped up efforts to halt the decline of China's foreign exchange reserves and stabilize the yuan exchange rate.
China's foreign exchange reserves grew $20.4 billion to $3.03 trillion in April, marking a third straight month of increases, SAFE data showed on May 7.
SAFE attributed April's reserve growth to "balanced foreign exchange supply and demand as well as the appreciation of currencies against the dollar."
"The new rules will have little impact on the yuan's foreign exchange rate against the U.S. dollar as the yuan has faced less pressure this year than in 2016 when it weakened continually," Liu said.