China, which has the world's largest currency reserves, said Friday it was revising its foreign exchange-management regulation as it tries to contain an inflow of capital.

The revisions will regulate activities, including management of foreign capital inflow and outflows, improving exchange-rate mechanisms and enhancing monitoring of cross-border capital flows, the Chinese government said on its Website. The State Council, the Cabinet, approved the draft.

A record trade surplus and investors seeking to profit from appreciation in the yuan has flooded China's economy with cash, driving up consumer prices, Bloomberg News said. Inflation was 7.1 percent in June, after reaching a 12-year high of 8.7 percent in February.

China's foreign-exchange reserves climbed to US$1.81 trillion at the end of June as regulators failed to stem inflows of speculative capital from abroad, the People's Bank of China said on July 14.

The State Council approved a plan to set up an exchange rate department under the central bank to help strengthen supervision of capital flows, China Securities Journal reported yesterday. The new department would probably be set up using the Exchange Rate Policy Division of the Monetary Policy Department as a basis. Wang Yu, deputy director of the Monetary Policy Department, might head the new department.

The State Council also approved a draft amendment to the insurance law, the Website statement said yesterday. The revision added some supplementary provisions to the industry's basic system, some self-regulation items and beefed up the market watchdog's supervision responsibilities and management means, without giving more details.

(Shanghai Daily August 3, 2008)