SHANGHAI (Reuters) - China’s forex regulator is telling banks to keep its instructions about curbing capital outflows secret and to ensure that research analysts keep any negative views about the yuan’s prospects to themselves, several bankers said.

The building of State Administration of Foreign Exchange (SAFE) is pictured in Beijing, China, January 11, 2017. REUTERS/Jason Lee

Both demands are seen as an attempt by the authorities to prevent alarm that could trigger further declines in the yuan, the bankers from local and foreign banks said.

The yuan lost more than 6 percent against the dollar last year and is at eight-year lows, prompting a flurry of restrictive measures on capital outflows from the State Administration of Foreign Exchange (SAFE), including setting limits on banks’ currency volumes in some cities or provinces and requiring approval for ever smaller transactions.

SAFE, which is part of the People’s Bank of China (PBOC), is insisting in oral instructions to dozens of banks that they don’t reveal its role in such restrictions, six bankers said, which was damaging their relationships with clients since they were unable to explain why they were turning away business.

In a statement late on Wednesday, SAFE’s Shanghai branch said it had not adopted new measures to control forex conversions and cross-border payments, but had urged banks to strengthen checks on compliance and deal authenticity.

SAFE also said a media report about it telling banks to keep its instructions secret was “inaccurate, and is misleading public opinion and disturbing normal operations of the Forex market”.

SAFE did not identify the media outlet or detail what was inaccurate and misleading. There was no reply at its Beijing headquarters or Shanghai branch when Reuters called for comment outside normal office hours.

SAFE’s reticence began at least as far back as August, when its Shanghai branch called at least 20 of the major foreign and domestic banks operating in the city to a meeting with the regional heads of several SAFE departments.

A representative from an international bank attending the meeting said there were no written instructions, but a high-ranking SAFE official told them explicitly what was expected of them.

“You must control your forex deficit, but you can’t say that SAFE is controlling capital outflows,” the official told the bankers.

The banks were told to “manage sentiment” to prevent public panic, the banker said, and the banks’ research analysts should not broadcast any negative views on the yuan.

“They told us not to publish bad house views - analyst house views - on the yuan”, the person said.

A second banker on the forex team of an international bank said his bank had received the same instructions.

Where a bank has exceeded the SAFE-set limits for forex transactions in a month, they have to turn business away, but are unable to explain the real reason why, several bankers complained.

“We’re not going to tell our customers that (our forex business) has stopped; we just have to find ways to turn down the business we’re not allowed to do,” said a banker at Chinese Commercial Bank Ping An who had received SAFE instructions from seniors.

“It’s not good for client relationships,” he added, explaining that he had told his clients to go to other banks.

Ping An did not return requests for comment.

PENALTY THREAT

In a verbal order to at least two lenders, SAFE said it would vet all cross-border money transfers worth $5 million or more, down from $50 million, banking sources told Reuters in late November.

They also told the banks to interview clients to make sure the forex deals were not for fake transactions, or else face punishment, according to two bankers at separate listed banks.

In response to those orders, one of the banks sent an internal notice to employees, seen by Reuters, to alert them to SAFE’s requirements, explaining that the regulator’s penalties could include “cancelling business qualifications” needed for the lender to conduct forex business.

The notice passed on SAFE’s instructions that staff should not mention the regulator.

“Please do not reply to clients using wording such as SAFE controls, or SAFE doesn’t allow or strictly controls FX purchases,” it read.

Instead, they should adhere to the line provided by SAFE, that the purpose of the changes was to “promote healthy development of outbound direct investment” and “crack down on fake deals”, the notice added.

China’s foreign exchange reserves fell to $3.05 trillion in November from $3.3 trillion in the first 11 months of 2016, and many traders are betting there will be further outflows as U.S. interest rates rises make dollar assets more attractive.

But SAFE wants banks to advise clients to buy yuan and sell dollars, the international bank representative said, a play that is likely to lose clients money.

“If a person doesn’t have this need, how am I supposed to encourage it?” the banker said.

At the same time, SAFE is quietly choking programmes designed to open overseas markets to Chinese investors.

Even where institutional investors have been granted quotas to invest overseas, they are finding it increasingly difficult to exchange yuan into another currency.

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“SAFE would tell you that you still need to stand in the queue, and the waiting period is ‘uncertain’,” said an executive at Shanghai-based China equity fund house Greenwoods.

An investment programme set up so global funds can raise Chinese cash to invest overseas has ground to a halt without explanation.

“The application process seems to be in a state of suspension,” Michael Lu, managing director of Greater China Business Development of Dutch money manager Robeco told reporters in November. </s> WASHINGTON (AP) — The International Monetary Fund sees little evidence that China’s central bank has deliberately reduced the value of the nation’s currency — a position at odds with the Trump administration’s decision this week to accuse Beijing of manipulating the yuan.

The IMF said Friday in its yearly review of China’s economy that the yuan has been “broadly stable” against other currencies, suggesting there’s been little intervention by the People’s Bank of China. A weaker yuan would give Chinese exporters a competitive price advantage over foreign rivals.

The Treasury Department on Monday named China a currency manipulator for the first time since 1994. The move, reversing its decision in May to keep China off the blacklist, came after Beijing’s central bank let the yuan drop to its lowest point in 11 years.

“Clearly, they are manipulating their currency,” White House trade adviser Peter Navarro told CNBC Friday.

China’s central bank sets the exchange rate each morning and allows the yuan to fluctuate by 2% against the dollar during the day. The central bank can buy or sell currency — or order commercial banks to do so — to keep the yuan’s price from swinging too widely.

In letting the yuan slide, the central bank was responding to economic reality. China’s economy is slowing — partly because President Donald Trump has slapped tariffs on $250 billion worth of Chinese imports — and market pressures are pulling the currency down.

The world’s two largest economies are locked in a tariff war over U.S. allegations that China is stealing trade secrets and forcing foreign companies to hand over sensitive technology. Twelve rounds of talks have failed to end the impasse, and a Chinese delegation is expected in Washington next month to continue the negotiations.

But Trump rattled financial markets Friday by saying it would be “fine” with him if talks got called off. The Dow Jones Industrial Average fell 90.75, or 0.3%, to 26,287.44, and the Nasdaq dropped 80.02, or 1%, to 7,959.14. </s> The U.S. Treasury Department designated China as a currency manipulator on Monday afternoon, after the yuan’s value against the dollar fell below a “line in the sand” and intensified trade tensions. In a statement, the Treasury Department said Secretary Steve Mnuchin, “under the auspices of President Trump,” has determined that China is a currency manipulator. “As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions,” the Treasury department said, explaining: “In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past. The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain unfair competitive advantage in international trade.” China’s currency weakened early Monday, trading at more than 7 yuan per U.S. dollar for the first time in more than a decade. The perceived willingness by China to use the yuan as a trade weapon led to a huge selloff on Wall Street, with the Dow Jones Industrial Average and S&P 500 falling almost 3%, while the tech-heavy Nasdaq Composite slid 3.5%.Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news. </s> WASHINGTON/SHANGHAI, Aug 5 (Reuters) - A yearlong U.S.-China trade war boiled over on Monday as Washington accused Beijing of manipulating its currency after China let the yuan drop to its lowest point in more than a decade.

The U.S. Treasury Department announced late on Monday that it had determined for the first time since 1994 that China was manipulating its currency, knocking the U.S. dollar sharply lower and sending gold prices to a six-year high.

"As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China's latest actions," the Treasury Department said.

The IMF had no immediate comment.

The statement, made after the stock trading session ended, sent S&P 500 futures down more than 1%, suggesting investors expect Wall Street to open on Tuesday with additional losses following Monday's drop of 3% on the S&P 500 .

The U.S. action came after China let its yuan weaken 1.4%, sending it past the key 7-per-dollar level for the first time in more than a decade. Beijing also halted U.S. agricultural purchases, inflaming a trade war that has roiled financial markets, disrupted supply chains and slowed global growth.

Even before the formal designation, Trump on Monday accused Beijing on Twitter of manipulating its currency.

"China dropped the price of their currency to an almost a historic low. It's called 'currency manipulation.' Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!" Trump tweeted.

Trump stunned financial markets last week by vowing to impose 10% tariffs on the remaining $300 billion of Chinese imports from Sept. 1.

In its statement, the Treasury Department said the People's Bank of China (PBOC) on Monday made clear that Chinese authorities had ample control over the yuan exchange rate despite their rejection of any claims of manipulation.

"This is an open acknowledgement by the PBOC that it has extensive experience manipulating its currency and remains prepared to do so on an ongoing basis," the Treasury statement said.

It said China's actions violate its commitment to refrain from competitive devaluation as part of the Group of 20 industrialized countries. Treasury said it expected China to adhere to those commitments and not target China's exchange rate for competitive purposes.

U.S. law sets out three criteria for identifying manipulation among major trading partners: a material global current account surplus, a significant bilateral trade surplus with the United States, and persistent one-way intervention in foreign exchange markets.

After determining a country is a manipulator, the Treasury is required to demand special talks aimed at correcting an undervalued currency, with penalties such as exclusion from U.S. government procurement contracts.

The U.S. Treasury had designated Taiwan and South Korea as currency manipulators in 1988, the year that Congress enacted the currency review law. China was the last country to get the designation, in 1994.

Before the U.S. designation, the People's Bank of China (PBOC) provided an early impetus for yuan bears by setting a daily rate for the currency at its weakest level in eight months, weakening a long defense that kept the yuan stronger than 7 to the dollar.

The move was made with the blessing of policymakers to factor in market concerns around the U.S.-China trade war and its effect on China's weakening economic growth, three people with knowledge of Chinese monetary deliberations told Reuters.

Hours before the U.S. action, PBOC Governor Yi Gang, who has been a key player in U.S.-China trade negotiations, said the yuan was now at an appropriate level given China's economic fundamentals. He said that China would not engage in a competitive devaluation and would maintain the stability and continuity of foreign exchange management policies.

The PBOC had linked the yuan's weakness to the fallout from the trade war, but said it would not change its currency policy and that two-way fluctuations in the yuan's value were normal.

With the escalating trade war giving Beijing fewer reasons to maintain yuan stability, some analysts said they expect the currency to continue to weaken further to as low as 7.3 to the dollar.

The flare-up in trade tensions has renewed global financial market concerns over how much China will allow the yuan to weaken to offset heavier pressure on its exporters.

Despite slowing economic growth over the past year amid the intensifying trade war, China has not seen a rush of capital flight, thanks to capital controls put in place during the last economic downturn and growing foreign inflows into Chinese stocks and bonds. </s> After identifying "concrete steps" that China has used to manipulate its currency while maintaining substantial foreign exchange reserves, the US government will engage with the International Monetary Fund to eliminate perceived unfair competition from Beijing, Treasury Secretary Steven Mnuchin (left in photo) said in a statement released late Monday.

On Monday, China let the yuan drop below 7 per $1 (8 per €1) Monday for the first time in 11 years, which gives exporters a price edge in world markets and lessens the effect of tariffs imposed by the United States. The devaluation prompted an irate Twitter outburst from Donald Trump (right in photo).

According to the US Treasury, a statement released Monday by the People's Bank of China openly acknowledged "that it has extensive experience manipulating its currency and remains prepared to do so on an ongoing basis." Therefore, Mnuchin, "under the auspices of President Trump, has today determined that China is a currency manipulator."

China also pledged to stop importing US agricultural goods — inflaming a worsening trade war with the United States.

Read more: HSBC CEO quits as bank warns of looming clouds

The US's own currency fell to a two-week low of $1.12 to €1 after the Treasury Department released its statement.

The 1.4% drop in the yuan's value comes after Trump vowed to impose 10% tariffs on $300 billion of imports from China beginning September 1 — breaking a ceasefire in the trade war, which has disrupted global supply chains and slowed growth. The US Treasury Department charges that Monday's measure also violate China's G20 commitments to refrain from competitive devaluation.

The designation could pave the way for more US sanctions against China. In May, the Treasury Department declined to sanction China for manipulating its currency.

Read more: US to deploy new missiles in Asia 'sooner rather than later'

The United States last named China a currency manipulator in 1994, making it the last country to reserve the Treasury Department's designation. The department named Taiwan and South Korea manipulators in 1988 — the year that Congress enacted the currency review law.

DW's editors send out a selection of the day's news and features. Sign up to receive it here. </s> WASHINGTON (AP) — The U.S. Treasury Department labeled China a currency manipulator Monday after Beijing pushed down the value of its yuan in a dramatic escalation of the trade conflict between the world's two biggest economies.

The decision, which came hours after President Donald Trump accused China of unfairly devaluing its currency, marks a reversal for Treasury: In May, it had declined to sanction China for manipulating its currency.

The U.S. had not put China on the currency blacklist since 1994.

The designation could pave the way for more U.S. sanctions against China.

Earlier Monday, China had allowed its currency to weaken to an 11-year low, a move that gives its exporters a price edge in world markets and eases some of the damage from U.S. tariffs on Chinese products.

Trump had gone on Twitter to denounce China's move as "currency manipulation." He added, "This is a major violation which will greatly weaken China over time."

In a statement, Treasury said it would work with the International Monetary Fund "to eliminate the unfair competitive advantage created by China's latest actions."

"This is an extraordinary action of hostility against a major trading partner, with little economic basis and again driven mostly by presidential whims," said Cornell University economist Eswar Prasad, former head of the China division at the International Monetary Fund. "The timing and apparent logic for Treasury's designation of China as a currency manipulator reeks of arbitrariness and retaliation, and will inflict further damage on an already wounded relationship between China and the U.S."

China's central bank sets the exchange rate each morning and allows the yuan to fluctuate by 2% against the dollar during the day. The central bank can buy or sell currency — or order commercial banks to do so — to dampen price movements.

China's central bank blamed the yuan's drop on "trade protectionism" — an apparent reference to Trump's threat last Thursday to impose tariffs Sept. 1 on the $300 billion in Chinese imports to the United States in addition to the $250 billion he's already targeted.

For more than a year, the U.S. and China have been locked in a trade war over allegations that Beijing steals trade secrets and pressures foreign companies to hand over technology. </s> The International Monetary Fund sees little evidence that China's central bank has deliberately reduced the value of the nation's currency — a position at odds with the Trump administration's decision this week to accuse Beijing of manipulating the yuan.

The IMF says in its yearly review of China's economy that the yuan has been "broadly stable" against other currencies, suggesting that there's been little intervention by the People's Bank of China. A weaker yuan would give Chinese exporters a competitive price advantage over foreign rivals.

The Treasury Department on Monday named China a currency manipulator for the first time since 1994. The move, reversing its decision in May to keep China off the blacklist, came after Beijing's central bank let the yuan drop to its lowest point in 11 years. </s> Get breaking news alerts and special reports. The news and stories that matter, delivered weekday mornings.

Experts in international trade and monetary policy are skeptical of the U.S. Treasury’s claim that China is manipulating its currency, and say the accusation only adds fuel to the simmering trade dispute that has weighed on global growth and equity markets.

“President Trump’s labelling of China as a ‘currency manipulator’ is likely to inflame and intensify already fraught relations between the two world’s largest economies,” said Nigel Green, founder and CEO of the deVere Group.

On Monday, the Chinese yuan, also called the renminbi, crossed the symbolically significant exchange rate of seven to the U.S. dollar. In a statement issued Monday, Treasury Secretary Steven Mnuchin accused China of trying “to gain unfair competitive advantage in international trade.”

The declaration could be a pretext for additional sanctions against Chinese goods and businesses. "In practical terms, the actions this week can be expected to pave the way for more sanctions to be imposed on China from the U.S.,” Green said.

Trump has accused China of manipulating its currency since he was on the campaign trail. He promised to make such a declaration on “day one” after his election, but had not done so.

As such, some experts saw a political motive for Monday’s pronouncement.

“They get to satisfy the President,” said Nicholas Lardy, a senior fellow at Peterson Institute for International Economics.

“There are technical requirements to be called a currency manipulator under the law… and it does not appear that China has met those requirements,” said Craig Allen, president of the U.S.-China Business Council. “There’s no magical formula to say what is an overvalued or undervalued currency.”

Mnuchin said the U.S. would engage with the International Monetary Fund “to eliminate the unfair competitive advantage created by China’s latest actions,” but there is no indication that the organization would side with its conclusions.

“It could well be that the I.M.F. will come to a different conclusion than the Treasury and Trump,” Lardy said.

Contrary to Treasury Department’s assertion that China has been actively driving down the value of its currency, the reverse has been taking place, Allen said. Beijing has been propping up the value of the yuan as the trade war and other factors have taken a toll on its economy.

“The Chinese government has been active in supporting the renminbi, not devaluing it,” Allen said.

But by allowing that support to be removed and letting the renminbi drop, China showed its cards—that it's within its power to influence the currency's strength or weakness.

There are a number of supportive measures available to Chinese policymakers, including setting the starting rate for daily trading of the yuan, selling yuan-denominated financial instruments and tightening capital controls to prevent market flight. Experts theorized that Beijing temporarily might have backed off those supportive measures, causing the yuan to fall against the dollar. On Tuesday, its value rose incrementally, edging back above seven.

If China did influence value of its currency, it was more likely motivated by ongoing protests in Hong Kong than trade tensions with the U.S., said Jamie Cox, managing partner at Harris Financial Group.

“If this spills over into mainland China, it would definitely make their economy suffer,” he said. “It’s bigger than the trade situation. They’re concerned about their economy at large.”

And if the Trump administration’s declaration was a gambit to bait China into more drastic measures, the move backfired, Cox said.

“The Chinese basically didn’t bite. The President came back and labeled them a currency manipulator. A logical conclusion would’ve been for them to devalue more, but that’s not what they did,” he said.

Being able to paint Trump as the bully gives China a moral high ground that hurts America’s standing on the world stage, Lardy said. The combination of the currency accusation and the imposition of tariffs — following a promise not to at the G20 Summit — gives them plenty of ammunition, Lardy said. “Trump has taken a preemptive action in violation of his previous pledge to Xi.”

This gives the Chinese trade delegation less motivation to reach an accord, despite the economic costs. “Their incentive to carry out any negotiations is seriously undermined,” he said.

But by allowing that support to be removed and letting the renminbi drop, China showed its cards that it's within its power to influence the currency's strength or weakness. </s> Get breaking news alerts and special reports. The news and stories that matter, delivered weekday mornings.

The U.S. Treasury Department on Monday designated China as currency manipulator, a historic move that no White House had exercised since the Clinton administration.

“Secretary Mnuchin, under the auspices of President Trump, has today determined that China is a Currency Manipulator,” the Treasury Department said in a release. “As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.”

The formal designation — the first since President Bill Clinton’s administration in 1994 — came after China on Monday allowed its currency to breach a psychological level.

“In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past,” the Treasury Department added. “The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain unfair competitive advantage in international trade.”

The yuan fell to 7 against the dollar earlier in the session for the first time since 2008.

“I think many people in the private sector may not conclude it is a currency manipulator. The key rule is it’s not intervening consistently or persistently to weaken the currency and therefore the private sector, like economists and strategists may not be convinced,” said Marc Chandler, chief market strategist at Bannockburn.

“This is another step in the currency war,” he added. “This also makes trade more difficult. This is probably bipartisan. Many Republicans and Democrats think China is taking advantage of us.”

Even before the formal designation, President Donald Trump took to Twitter to voice his opinion, accusing Beijing of manipulating its currency as the trade war between the world’s largest economies intensified.

“China dropped the price of their currency to an almost a historic low,” Trump said in a tweet. “It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”

That drew support from the other side of the political aisle on Monday, when Senate Minority Leader Chuck Schumer, D-N.Y., supported designating China a currency manipulator.

“China has been manipulating their currency long-before and since President Trump took office,” Schumer said in a statement. “He should finally tell his Treasury Secretary to label China a currency manipulator. That’s all he needs to do to make it happen.”

The next step is for the U.S. to make its case to the IMF, but it’s not likely to lead to formal penalties. The manipulator label is mostly symbolic and matters more as a slight to one of our biggest creditors and an escalation in the trade war.

The Treasury Department’s announcement centered around a 1988 portion of federal law that permits the U.S. Treasury Secretary to work with the IMF to “eliminate the unfair advantage” associated with currency manipulation.

“As a rhetorical matter, I think this is a very big deal. It’s something that has been in the ether for some time; I think the Chinese have been concerned about it mainly in terms of how they’re perceived by others,” said Nathan Sheets, chief economist at PGIM Fixed Income.

“Where it’s less biting is that the 1988 statute they’ve invoked that has no concrete remedies,” Sheets added. “It’s about referring them to the IMF and having consultations with them.”

The currency’s move came after Trump ratcheted up the trade war last week, slapping 10 percent tariffs on another $300 billion worth of Chinese goods, effective Sept. 1. Until Monday, the Trump administration had passed on five opportunities to label China as a currency manipulator.
Reuters reports, on the basis of anonymous Chinese bankers, that the State Administration of Foreign Exchange is instructing them to keep quiet about any negative analysis of prospects for the yuan.