While official figures on Tuesday showed China's GDP grew 6.9 per cent in 2015 and the economy was stable despite the turmoil on financial markets, capital outflows threaten to disrupt growth and force Beijing into a major devaluation of the yuan.

China's managed currency has fallen 3 per cent since August, which should help its economy. There are fears of a larger devaluation and moves by the central bank to prop up the currency.

China's foreign-currency reserves fell $US108 billion ($150 billion) in December to the lowest level in three years. Economists estimate the total amount of capital that flowed out of the country was about $US145 billion.

A former adviser to China's central bank, Yu Yongding, said the decisoin to tighten existing capital controls was "useful but not sufficient" because the yuan is overvalued.

"If they keep the exchange rate unchanged it encourages outflows because the [yuan] is very expensive to hold," he said. "They need to allow the [yuan] to devalue to market equilibrium."

An Australian real estate agent based in Shanghai, Scott Kirchner, said the tougher capital controls could "cause problems for Australian developers as clients may not be able to get their money out of China".

"I'm advising people not to sign a contract unless they already have their money outside China," said Mr Kirchner, a director of BellerChina. "There is lots of uncertainty at the moment and that might affect sales."

In China, individuals are restricted to exchanging the equivalent of US$50,000 in foreign currency each year.


American lawyer Dan Harris said on his blog on January 14 that his firm's China office had received more "money problem" calls in one week than it had received for the whole of the past year.

"If there is a common theme, it is that China banks seem to be doing whatever they can to avoid paying anyone in dollars," said Mr Harris from Seattle-based firm Harris Moure​.

​He said it had affected real estate agents and companies waiting for Chinese investment money.

Previously, one option for those interested in buying overseas property was to use the currency quotas of friends and family.

Underground conduits

Alternatively, underground channels in Macau or Hong Kong were available to get money out of the country. Both these methods are now under increased scrutiny as the government tries to stabilise the yuan.

"They haven't introduced any new capital controls but the implementation of existing measures has been strengthened," said another executive, who works at one of China's big state-owned banks.

For example, he said "if you want to transfer money to a private bank account opened with an American passport, all of the transfers need to provide an American tax identification number."


David Olsson, a China Practice Consultant at law firm King & Wood Mallesons, said Chinese banks "have clearly got some direction to look more closely at outbound capital flows particularly around Shanghai and Shenzhen."

He said that was aimed at curbing the "massive amount of currency flowing out of the country for speculation purposes amid concern the [yuan] is devaluing faster than people would like to see".

He said it was not expected to affect legitimate outbound investment and Australia would continue to be a big beneficiary of Chinese investment in agriculture, services-related sectors and tourism.

China has been gradually tightening capital controls since the middle of last year, as outflows accelerated due to the slowing economy and increased talk of devaluation.

Daily limit imposed

In September, the government introduced restrictions on cash withdrawals from foreign ATMs. For this year, individuals can now only withdraw the equivalent of 100,000 yuan ($22,000) in foreign currency from an overseas ATM using their China Union Pay cards.

There was previously a daily limit of 10,000 yuan, but no overall limit on yearly withdrawals.

Beijing has also cracked down on the "pooling" of foreign exchange quotas, a practice where family and friends use each others allocations to put money into a single overseas bank account.


Sources previously said Chinese banks have begun tracking transactions where a single foreign account received $US200,000 in a 90-day period with a view to blocking further transfers.

UBS China economist Wang Tao said the "top concern" of markets is capital outflows getting "out of control, leading to a sudden tightening of domestic liquidity and sharp depreciation of the currency, resulting in market turbulence in China and elsewhere in emerging markets".

She thinks the government will control outflows.

"We think the Chinese government will use tighter capital controls, its foreign exchange reserves and [reserve requirement ratio] cuts to manage the scale and consequence of capital outflows," she said.