Safe Will Strengthen Cross-Border Capital Flow Regulation

In December 13th,

The meeting held that, in implementing the spirit of the central economic work conference, in the foreign exchange management work, we must pform the management concepts and methods conscientiously and push forward the reform of key areas and key links in foreign exchange management. Two, we must comply with the needs of economic development, enhance service awareness and further facilitate trade and investment facilitation; three, we must strengthen the supervision of cross-border capital flows, actively respond to and crack down on abnormal cross-border capital flows such as hot money, and safeguard foreign economic and financial security; four, we must improve the management of foreign exchange reserves, and strive to maintain and increase the value of foreign exchange reserve assets.

Chinese government officials have warned many times about capital inflows caused by quantitative easing measures in developed countries such as the United States.

Deng Xianhong, deputy director of the safe, said on Sunday that we should be alert to the recent hot money flowing into China.

In the short term, hot money may continue to flow into China, further increasing capital market volatility and boosting inflationary pressure.

He said that as the world's second largest economy and the first recovery of emerging economies, China has naturally become the main target of international hot money.

In order to crack down on "hot money", since February 2010, the foreign exchange bureau has launched a special action to deal with and crack down on "hot money" in some provinces and cities with larger volume of foreign exchange business.

The foreign exchange bureau recently issued the notice on strengthening the management of foreign exchange business to further regulate the cross-border flows of funds such as trade, foreign direct investment, return investment and overseas listing. In particular, it strengthened the management of bank's comprehensive position and short-term foreign debt, strengthened the authenticity audit obligation of banks in handling foreign exchange business, and further combated all kinds of illegal capital inflow and settlement, and prevented the financial risks caused by the cross-border inflow of "hot money".

The central bank announced in December 10th that it decided to raise the deposit reserve ratio of deposit financial institutions by 0.5 percentage points from December 20, 2010.

This is the third increase in the deposit reserve ratio in the sixth and 30 days of the central bank.

Some analysts believe that the central bank's reserve requirement ratio should be directly related to the expected export and surplus in November.

The export growth rate reached 37.3% in October, and the high export growth rate meant that the surplus and appreciation expectations will continue to remain high. This will lead to more hot money inflows and further increase in foreign exchange reserves, and the increase in the reserve requirement can hedge rising hot money and foreign exchange reserves.