Tags: China | Tighten | Inflow | Overseas | Funds

China to Tighten Investments from Overseas

Tuesday, 09 Nov 2010 10:09 AM

China will strengthen the auditing of overseas fundraising and force banks to hold more foreign exchange as part of efforts to crack down on hot-money inflows.

The State Administration of Foreign Exchange will “strictly” manage banks’ short-term foreign debt quota and introduce new rules on covering their exposure to currency risk, the regulator said in a statement on its website today. The government will also regulate Chinese special-purpose vehicles overseas and tighten controls on equity investments made by foreign companies in China, it said.

The measures underscore concern around the world that the Federal Reserve’s decision last week to buy its own debt to keep borrowing costs near zero will cause investors to seek higher yields in emerging markets. Chinese and European leaders have said they plan to discuss the impact of quantitative easing at the Group of 20 summit this week in Seoul as well as the dangers of competitive currency devaluations.

The rules are aimed at “further curbing inflows and settlement of non-compliant funds,” the foreign exchange regulator said. They are designed to “maintain China’s economic and financial security,” it said.

The U.S. Federal Reserve’s decision to pump $600 billion into the economy might “shock” emerging markets by flooding them with capital, Chinese Vice Finance Minister Zhu Guangyao said yesterday in Beijing. China’s capital controls can block abnormal inflows of money, central bank Governor Zhou Xiaochuan said at a forum in Beijing last week.

The regulator said that a bank’s daily net dollar positions, in expired forward contracts and spot greenback holdings, should not be less than yesterday’s levels. Forcing banks to keep hold of the U.S. currency will limit their ability to meet orders for yuan purchases.

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China will strengthen the auditing of overseas fundraising and force banks to hold more foreign exchange as part of efforts to crack down on hot-money inflows. The State Administration of Foreign Exchange will strictly manage banks short-term foreign debt quota and...
China,Tighten,Inflow,Overseas,Funds
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2010-09-09
Tuesday, 09 Nov 2010 10:09 AM
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