China’s central bank has urged commercial banks in Shanghai to guard against money outflows via the Shanghai Free Trade Zone disguised as foreign investment, two sources with knowledge of the instructions said on Friday.
The Shanghai headquarters of the People’s Bank of China asked for particular vigilance against money originating in other provinces or cities in China that flowed into the zone en route abroad, the banking industry sources said.
The guidance is the latest measure to stem surging capital outflows as the yuan plumbs 8-1/2 year lows against the US dollar.
“The central bank has urged lenders to strengthen due diligence to prevent capital outflows disguised as outbound investment,” said one source, who declined to be identified because he was not authorized to speak publicly about the matter.
The PBOC in Shanghai did not have an immediate comment.
On Wednesday it said it would crack down on capital flight and closely monitor abnormal capital flows through the trade zone.
In a report on Tuesday, Capital Economics estimated that capital outflows last month were the largest since January, and posed a threat to China’s exchange rate regime.