(Yicai Global) Jan. 3 -- The Chinese government will not make any changes on USD50,000 annual quota for citizens'foreign exchange purchases, but the process of buying foreign currencies has become more complicated in the new year. New regulations announced by China's foreign exchange regulator will be seen as bad news by people hoping to convert their yuan into foreign currencies in 2017.
All personal banking customers buying foreign currency at the counter or via online banking services are now required to fill out a 'Personal Foreign Exchange Purchase Application Form,' which says, "Foreign currencies purchased by individuals may not be used for buying properties or securities abroad."
Under the new rules, such foreign currency cannot be used to buy make type of regulated capital investments such as life insurance or any other kind of insurance of an investment nature. The new rules ban using foreign exchange purchase quota for money laundering, underground banking or any other illegal transactions or activities.
Individuals found in violation of forex purchase regulations will be put on a 'watch list' by the State Administration of Foreign Exchange (SAFE) and will be disqualified from quota allocation for three years. In addition, offenders will be referred to relevant authorities for anti-money laundering investigation. Fines up to CNY50,000 (USD7,194) and 30 percent of the total amount of forex transaction could also be imposed.
Chinese citizens who convert their yuan into foreign currencies will have to state the purpose of their transaction. Foreign exchange purchases can only be for tourism, studying abroad, outbound travel for government or business affairs, visiting relatives and receiving medical treatment abroad. The "expected time period for the use of foreign currency" purchased also has to be specified.
According to a press release issued by SAFE on Dec. 31, 2016, loopholes in the citizens' foreign exchange purchase system in China have led to frequent forex fraud cases and money laundering, causing disorder in the foreign exchange market. From this year, China will further improve individuals' foreign exchange information reporting management and clarify relevant foreign exchange purchase and settlement rules and legal liabilities.
China's foreign exchange reserves plunged to USD3.0516 trillion in Nov. 2016. Given the continued depreciation of the yuan, a large number of Chinese citizens are expected to rush to convert their yuan into the dollar in the new year. The Chinese foreign exchange reserves would drop below the USD3 trillion psychological barrier, predict some analysts.