Bureaus link to battle inflow of 'hot money'

Source: Xinhua  |   2008-7-4  |     NEWSPAPER EDITION

STEPPING up the battle against "hot money" flowing into and out of China, three government departments will link internal electronic systems from July 14 to check foreign exchange receipts and export settlements, the State Administration of Foreign Exchange said yesterday.

SAFE said it would conduct the checks with the other two departments — the Ministry of Commerce and the General Administration of Customs (GAC). With the new online checks, regulators will be able to compare enterprises' forex receipts and settlements with their exported goods reported to GAC. After a trial period, the new mechanism will formally operate from August 4.

Mainland enterprises must also report to SAFE their advance export receipts and deferred payments of imports.

SAFE said that by monitoring advance export receipts and their later actual exports, it would be able to prevent speculative overseas funds from flowing into the country under the guise of trade. The administration said that monitoring deferred payments for imports could prevent a possible large capital flight in the future.

"Hot money" is short-term global speculative funds moving among financial markets in search of the highest short-term returns.

The government doesn't release official figures about how much "hot money" there is in the system, nor use the term. But analysts had estimated at least US$147.9 billion of "hot money" had flowed into the country in the first five months of this year. They also reckon as much as US$600 billion in "hot money" had surged into the country, most of it after 2005.

They also believed that over-invoiced exports, along with overstating foreign direct investment and underground private banks, were three major channels for "hot money" to flow into China.