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Safeguards Against Speculation

The State Administration of Foreign Exchange (SAFE) took four measures to tighten the management of foreign exchange inflow, in an effort to supervise and guard against the entering of speculative capital to China, according to the Economic Daily.

According to the report, a SAFE official said the administration will gradually establish a framework to balance inflows and outflows of foreign exchange. The framework should satisfy the rational and legal demands of foreign exchanges and simplify their circulation procedures. It should also provide greater selectivity in the management system and could prevent inflows of speculative foreign exchange.

In response to the relatively rapid growth of China's foreign debt in recent years, especially short-term debt, SAFE has strengthened supervision of the lending of foreign-funded banks and foreign-funded enterprises, and has encouraged them to replace short-term debts with long-term debt to improve the term structures of China's foreign debts.

SAFE has also strengthened auditing during the settlement of foreign exchange transactions to ensure the authenticity of settlements. This has proven to be a key measure in preventing possible effects of short-term flows of capital.

For settlements of more than US$200,000 of capital or foreign exchange transactions by foreign-funded companies, the companies should be able to prove their actual paying demand in Chinese currency and make clear that the settlement of foreign exchange transactions will not be used to pay the loans denominated in renminbi.

Foreign-exchange settlements of more than US$50,000 by individuals must be approved by departments in charge of foreign exchange.

In addition, China urges designated banks offering foreign exchange services to perform supervision duties, so as to gradually shift the government's management of foreign exchange from direct administration to indirect supervision.

It will to a large extent depend on the banks to implement the above-mentioned measures. SAFE will supervise and urge banks to fulfil their duties mainly through business guidance and after-action inspections, said the paper.(Xinhuanet)