Appendix I. Measures Taken by China Since Mid-2016 to Stem Capital Outflows
Key areas of tighter enforcement of existing CFMs since mid-2016:
ODI, where the authorities are paying closer attention to certain activities (e.g., investment in non-core businesses). In addition, SAFE issued in January 2017 a circular requiring companies to explain to banks the sources and purposes of the investment funds, and present the resolutions of board of directors. The PBC also urged commercial banks to tighten their verification of the authenticity of certain ODI.
Offshore RMB lending by non-financial institutions: commercial banks were urged to enforce strictly existing rules (including the prudential lending limit of 30 percent of lender’s equity). Banks must strictly examine whether the business operating scale of the overseas borrower is suitable for the loan size, and the authenticity and reasonableness of the use of outbound loan.
Appendix II. Chart of the IMF’s Integrated Approach to Capital Account Liberalization
Prepared by Calixte Ahokpossi (SPR)
The Chinn-Ito index is the first standardized principal component of four binary indicators built from AREAER (The IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions).
The Quinn index measures the intensity of controls in each category, not merely whether it is open or not. It scores (0, 0.5, 1, 1.5, or 2) based on the severity of restrictions (existence of approval requirements and frequency of approval).
See “Outlook for Net Capital Flows”, in China – Selected Issues Paper, IMF 2016.
For a comprehensive summary of the IV, see: Box 1 in “Capital Flows—Review of Experience with the Institutional View”, IMF 2016 and Box 1 in “Managing Capital Outflows—Further Operational Considerations”, IMF 2015.
There have also been reports of the use of window guidance to tighten the enforcement of existing CFMs or to temporarily introduce new ones.
Per the Fund’s Institutional view (IV), capital outflows should be handled primarily with macroeconomic, structural, and financial sector policies, with CFMs only being useful in certain circumstances, i.e. as part of a broader policy package in crisis-type situations or when liberalization has outpaced the capacity of the economy to safely handle the resulting flows.