Hot money inflows targeted

BY    2013-05-07 20:31:59

  Warnings to be issued to companies if capital flows fail to match trade

  China's top foreign exchange watchdog has vowed to tighten supervision of cross-border capital flows through international trade in a major effort to block speculative money inflows which have helped push the yuan to record highs in recent weeks.

  The State Administration of Foreign Exchange said on Sunday it would increase scrutiny on exporters who channel money into the country disguised as trade payments.

  It said in a statement it would hand down warnings within 10 days if it finds that a firm's capital flows do not match physical goods shipments, or if the firm is channeling unusually large amounts of money into China.

  Such companies will then be placed on its "B list", which is for companies that are more closely monitored, for three consecutive months and will only be moved back onto the "A list" if all the relevant indicators return to its normal range.

  The SAFE said it will require banks to report suspicious transactions and take affirmative measures to prevent abnormal cross-border capital inflows as well as maintain a reasonable growth of trade financing.

  "Banks are not allowed to assist customers to evade foreign exchange regulations," the statement said.

  Companies and banks who break the regulations face being fined or closed, and their practices exposed to the public, the SAFE said.

  It said the first batch of warnings are likely to be sent out before Friday, and the tightened regulatory measures will take effect starting from June 1.

  Liu Yuanchun, assistant dean of the School of Economics at the Renmin University of China, said that inflows of speculative funds have been stimulated by easing monetary policies in the United States and European countries.

  "Funds seeking new investment opportunities have been returning to China since the second half of last year, as the US economy entered a slow recovery with the end of the financial deleveraging process, and the eurozone debt crisis was defused," Liu said.

  He said the Chinese regulator is keeping a close eye on any further rounds of foreign speculative investments, which may harm the country's financial stability and threaten economic growth.

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