China tightens currency controls to curb inflows

SHANGHAI (AP) - China has issued new controls on transfers of foreign currencies, moving to contain growth in its foreign exchange reserves and curb speculative inflows blamed on fueling inflation. 

The new rules, issued late Wednesday with immediate effect, call for penalties of up to 30 percent of the capital involved in any unauthorized inward or outward foreign currency transfers. 

"As China's economy becomes more internationalized and the movement of international capital flows accelerates, there is a need to improve the system and oversight of multinational capital movements,'' the State Administration of Foreign Exchange, or SAFE, said in a statement posted on its Web site. 

The new regulations appear broader in scope than new limits announced by SAFE last month that called for authorities to check invoices to ensure they are not being inflated as an excuse to bring unauthorized money into the country. 

The new rules order government departments to simplify regulations on foreign direct investment and authorizes them to crack down on illegal transactions. 

SAFE's statement noted a need to protect against the risks of such movements and to increase the level of transparency in managing them. 

Economists say that billions of dollars in speculative money have flowed into the country, seeking higher returns as the value of the Chinese currency has risen against the U.S. dollar.  

Such investments, often in real estate or stocks, inflate the money supply, adding to pressure for prices to rise at a time when inflation is already at 12-year highs. 

The government closely monitors money that enters the country for trade and investment and does not allow China's currency to trade freely on world markets, limiting its fluctuations against the U.S. dollar and other major currencies. 

The government does not release figures on how much unauthorized money is believed to enter China.  

But the official Xinhua News Agency, citing unidentified analysts, put the figure at US$147.9 billion in the first five months of this year. 

"The inflow of hot money has had some negative impact on the economy.  

"It is hoped that the regulation can enhance monitoring and control some speculative investment and foreign capital inflows,'' the official Xinhua News Agency quoted Zhang Ming, an expert at the Chinese Academy of Social Sciences, as saying.

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