China has intensified its examination of domestic companies’ overseas investments and the proceeds from share sales in Hong Kong. This comes amidst growing concerns about capital movement and the yuan’s stability.

In September, Chinese commercial banks recorded the highest foreign exchange sales to clients since July of the previous year, indicating a rising demand for foreign currency. Furthermore, Goldman Sachs reported significant currency outflows in January.

Weak domestic demand and low interest rates present ongoing challenges for the yuan. Major state-owned banks in China have also been actively selling dollars to help bolster the yuan’s value.

Authorities have been stepping up scrutiny on how businesses move money beyond China’s borders, particularly focusing on funds raised from selling shares in Hong Kong. These measures reflect wider efforts to manage capital movements and limit downward pressure on the yuan. Officials are now looking more closely at how companies use offshore earnings, ensuring that funds intended for overseas expansion are not redirected in ways that might weaken financial stability.

The yuan has remained under pressure, partly due to weakening consumer demand at home. With lower interest rates making it less attractive compared to other major currencies, investors have been looking elsewhere. Foreign exchange data from September showed that banks had to meet the highest demand for foreign currency in over a year, suggesting that businesses and individuals are seeking to convert more yuan into dollars. This aligns with a report from Goldman Sachs, which highlighted capital outflows earlier in the year.

Large state-owned lenders have intervened in currency markets by selling dollars, helping to slow depreciation. Their involvement suggests a coordinated effort to maintain stability, though movements in global markets continue to present challenges. The effectiveness of these interventions largely depends on broader economic trends, including China’s monetary policy decisions and how external investors perceive further risks.

Policymakers appear intent on reducing volatility, though additional tightening of capital controls could follow if currency weakness persists. The extent of future interventions may hinge on how markets react to ongoing policy measures and whether domestic conditions improve. Anyone watching these developments will need to assess not just official actions, but also the underlying shifts in market behaviour, central bank reserves, and global funding trends.