It’s a good time to be selling dollars in China. Industrial & Commercial Bank of China, the world’s biggest lender by assets, and at least three others are offering customers discounts when they sell foreign currency.
But those who buy dollars don’t get any such deals. The same bias is evident at Bank of Communications Co, where people selling more than $1,000 of foreign exchange get into a raffle for a printer or fitness tracker. As of this year, dollar bulls aren’t allowed in the draw.
The extra incentive for sellers of the greenback comes at a time of increased pressure on the yuan, with an imminent Federal Reserve interest-rate increase buoying the greenback and Donald Trump threatening to brand China a currency manipulator.
Also, Chinese authorities are intensifying a clampdown on outflows before a $50,000 annual currency conversion quota for individuals is renewed next month.
“Policy makers are using a number of measures that would fall under ’moral suasion,’ where they try to influence or guide the market without overt or explicit capital controls,” said Claudio Piron, Bank of America’s co-head of Asia currency and rates strategy in Singapore, who expects $600bn to leave China in 2017. “It will have limited efficacy and will only distort market pricing.”
Regional offices of the State Administration of Foreign Exchange have given banks verbal guidance to reduce net foreign- currency sales, according to people familiar with the matter who asked not to be named because the move hasn’t been made public.
While attractive conversion rates and gifts may help to an extent, they’re unlikely to reverse the yuan’s decline, according to Royal Bank of Scotland. The lender expects the Chinese currency to drop to 7.2 per dollar by the end of next year, from 6.8793 on Thursday.
“The only thing on investors’ minds when they panic about further depreciation will be how they can convert their yuan holdings as soon as possible,” said Harrison Hu, chief greater China economist at Royal Bank of Scotland in Singapore. “They won’t care about such small discounts.”
Customers who sell more than $1,000 of foreign currency to ICBC can get a 50% discount on the transaction spread – the gap between the interbank spot price and the conversion rate that the bank quotes at its branches for individuals.
That means that, if the Chinese currency is trading at 6.89 per dollar in the spot market and the bank’s retail exchange rate for clients to sell the greenback is 6.87, customers can offload the dollar at about 6.88.
At China Merchants Bank, customers who have more than 500,000 yuan ($72,640) of deposits can get a 32% discount on the transaction spread, according to an advertisement on the lender’s website. Bank of China Co’s Beijing branch is offering discounts of as much as 90% on handling fees when clients sell the British pound in cash, a post on the lender’s WeChat account shows.
Bank of Communications, the nation’s sixth-largest lender by market value, every month awards 40 portable printers worth 1,500 yuan each to customers who sell the equivalent of or more than $1,000 of foreign currency. While the lottery was open to dollar buyers from 2012 to 2015, according to the Xinhua News Agency, it is now limited to sellers.
“Our bank sets market-based retail conversion rates,” ICBC said in an e-mailed statement on Tuesday. “We had discounts for clients who buy or sell foreign currencies in previous years.” Bank of China, Bank of Communications and China Merchants Bank didn’t immediately reply to e-mailed requests for comment.
“China’s cross-border flows have some volatility but have the basis to remain stable,” SAFE said in an e-mailed statement. “The nation’s good economic fundamentals ensure steady cross- border capital flows in the medium to long term.”
Next month’s conversion quota renewal may spur demand for foreign currency, said Standard Chartered. If just 1% of China’s almost 1.4bn people max out the $50,000 limit, that’s an outflow of about $700bn – more than the estimated $620bn that Bloomberg Intelligence estimates flowed out in the first 10 months of this year.
“Individuals will be a key force that will drive yuan depreciation and outflows in the future, as Chinese households are slowly realising how much the currency has weakened,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp “It is unavoidable that the depreciation expectations will be reflected in the exchange rate eventually.”
The company logo for the Industrial & Commercial Bank of China is seen outside a branch in Beijing. ICBC, the world’s biggest lender by assets and at least three others are offering customers discounts when they sell foreign currency.