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Wednesday, August 6, 2008

China revises forex rules to handle rising flows

China has revised basic rules governing its foreign exchange system for the first time in 11 years to cope with growth in its foreign reserves and rising cross-border capital flows, the government said on Wednesday.
The approval process for overseas investment by Chinese companies and individuals was simplified, the cabinet, the country's forex regulator and the central bank said in a joint statement published on the regulator's website . Chinese companies can now retain forex income offshore if they wish. Previously, they were required to sell their forex income to designated banks in China or deposit it in accounts at those banks.
The revised rules require financial institutions to report changes in clients' forex income and payments to regulators. The rules were last revised in 1997, at the time of the Asian financial crisis, when Beijing was anxious to prevent large outflows of money.
With its foreign exchange reserves soaring to a record $1.81 trillion at the end of June this year from $1.68 trillion in March, the country is now keen to limit destabilising net inflows of money due to a huge trade surplus and foreign investment.

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