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China Unleashes New Steps to Control Financial Risks, Outflows 

February 4, 2016

Bloomberg News

China’s government is stepping up efforts to ward off a potential financial crisis, warning bank executives that their jobs are on the line unless they control risks and putting restrictions on an increasingly popular way of evading capital controls.

The moves come after China’s slowest economic growth in a quarter century fueled concerns that bad debts will cripple the banking system and speculative pressure on the yuan mounted. They add to evidence that President Xi Jinping’s government is moving with increased urgency to rein in financial-system risks.

In January, China stepped up administrative measures to slow capital outflows that Bloomberg Intelligence estimates reached $1 trillion last year. The tightening marked a reversal after years of easing that spurred global use of the yuan, a trend that turned on China when speculative bets against the currency offshore jumped.

Moving to plug one popular way for moving money out of China, the currency regulator is imposing restrictions on buying insurance products overseas, people with knowledge of the matter said Tuesday. Purchases of insurance products overseas using UnionPay debit and credit cards will be capped at $5,000 per transaction effective Feb. 4, according to the people.

Purchases through China UnionPay Co. cards have been exempt from capital controls that limit Chinese individuals to bringing out a maximum of $50,000 per year. Chinese people have been flocking to Hong Kong to buy insurance policies, which typically come with better service than on the mainland and also offer them a way to skirt controls on how much capital they can move abroad. Read more

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