China to regulate hot money

China to regulate 'hot money'

By China Daily
Asia News Network
Beijing
Published on July 5, 2008

The Chinese government is ready with new rules to tighten control over speculative-capital inflow from abroad, or "hot money".

The move follows economists' warning that billions of dollars in illegal capital have entered the country in the garb of normal trade.

The new system will make it mandatory for companies to provide evidence to the State Administration of Foreign Exchange (SAFE) for verification from July 14.

Exporters will be required to park their export receipts in temporary verification accounts until they are cleared as genuine trade revenue, according to a statement issued by the SAFE, the Commerce Ministry and the General Administration of Customs (GAC) on Wednesday night.

The new rules are aimed at stopping overseas traders from inflating their invoices to bring in more foreign money.

Inflating invoices is believed to be a common way of pushing overseas speculative capital into China.

Traders will have to report advance payments for exports and deferred payments for imports, too, because either of these channels can be used to bring in "hot money".

The new rules make it clear that the annual deferred payments for exports should not exceed 10 per cent of a trader's total payments for exports in the previous year.

The SAFE will work with the Commerce Ministry and the GAC to implement the new rules through a nationwide computerised network. Banks' computers will be linked to those of the customs department to crosscheck data. The departments used to monitor trade-related foreign capital flows separately, an arrangement that has not proved effective.

The collaboration will make the regulation more effective, an analyst said.

At a glance

- The move follows a warning that billions of dollars in illegal capital have entered China.

- Traders will have to report advance payments for exports and deferred payments for imports, too.