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China limits speculation in forex deals
Published on: 2009-11-26
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SHANGHAI -- China's foreign-exchange regulator tightened existing rules governing cross-border money transfers by individuals, in its latest effort to crack down on speculative capital flows even as pressure mounts on authorities to loosen control over the currency.
 

The latest measures from the State Administration of Foreign Exchange are designed to ensure individuals don't act as proxies in elaborate foreign-exchange deals that circumvent existing limits. In a statement, posted on its Web site Wednesday but dated Nov. 19, the agency said it is limiting the number of bank accounts owned by individuals that can be used in certain foreign-exchange transactions.


The measures are meant to address "unusual foreign-capital flows using individual [accounts] to enter the country, to strike at the foreign-exchange black market and underground banks and to protect the order of the foreign-exchange market environment," SAFE said in a separate statement.


The new move doesn't relate directly to the yuan's exchange rate -- an increasingly hot international issue lately -- and is a technical measure that closes a loophole in existing rules that permit some foreign-exchange dealing with yuan by Chinese people. But it reinforces Beijing's intention to maintain controls over capital flows.


Chinese officials have in recent months grown more vocal about "hot money" flowing into the country. China's economy is growing faster than all other major economies and pressure from Washington and other foreign capitals is mounting for Beijing to permit the yuan to resume appreciating against the dollar. So far there is no sign Beijing will loosen its grip on the exchange rate.


Reinforcing that, state media on Wednesday quoted Vice Foreign Minister Zhang Zhijun as saying ahead of a meeting with European monetary officials this weekend that Beijing will continue to adjust the exchange-rate system as suits its needs. "China will increase the flexibility of the [yuan] exchange rate at a controllable level in the future," Mr. Zhang was quoted as saying, "based on the market demand and with reference to a basket of currencies."


Capital outflows from China are also presenting issues for regulators. For instance, cash from mainland China is playing an important role in pushing up property prices in the city of Hong Kong, which uses its own currency.


SAFE's statements Wednesday said the new measures bar transfers of money from one source into five or more bank accounts owned by individuals onshore in China within a short period. Likewise, five or more individuals in China can't simultaneously send money to an individual offshore account within a period of a few days.


The measures appear aimed at stopping people from circumventing current limits on the amount of foreign exchange they can buy or sell.


Existing rules, which aren't changed by the latest move, let individuals send up to $50,000 worth of yuan out of the country each year, or bring in that much. Similarly, under existing policy, Hong Kong residents are allowed to transfer foreign exchange worth 20,000 yuan (about $3,000) into a mainland China bank account each day.


Spreading those quotas among several people -- in effect forming a syndicate -- could sidestep the official limits on cross-border money flows, although SAFE didn't specifically mention that method in its statements.


SAFE's allotments for currency movements are meant to make it easier for individuals to pay for education and travel abroad. It has the broader impact of choking off black-market foreign-exchange activity in China and possibly relieving some of the relentless demand to hold yuan by unlocking sources of true demand from some Chinese to own U.S. dollars and other foreign currencies.

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