Since the environment for China's foreign exchange regulation is expected to become more complex as more foreign firms enter the country following its entry into the international trade group, authorities are mulling ways to improve related policies and regulatory measures.

Feng Juping, director of supervision and inspection department under the State Administration of Foreign Exchange (SAFE), told Business Weekly that "A fair and friendly environment should be guaranteed by law to attract foreign investment."

She did not elaborate on what WTO-spurred measures are in the pipeline, but said accession to the WTO would help improve administration over foreign exchange and accelerate the reform of China's foreign exchange systems.

China improved its foreign exchange administrative mechanisms over a period of decades before it announced the convertibility of the Chinese Renminbi currency under the current account, which covers imports, exports and services, on December 1, 1996.

Now, the central government carries out its policies through designated banks, and bases the Renminbi's exchange rate against major foreign currencies on supply and demand in the interbank market. It still maintains a tight grip over the flow of foreign currencies under the capital account of the international balance of payments.

A spectrum of conditions should be in place to pave the way for the Chinese currency's convertibility under the capital account so as to avoid negative effects, Feng said. She said China's foreign exchange policy reform is tending towards making the Renminbi completely convertible.

She said the full convertibility of the Renminbi depends on macroeconomic conditions, the international balance of payments, and the proceedings of economic reform, the government's ability to exercise effective macroeconomic controls, the maturity of financial supervision and the formation of related laws. "It's a gradual process and conditional," she said.

She said a legal framework should be established to guarantee the orderly flow of foreign exchange and to prevent money laundering and capital outflows through illegal channels.

The State is expected to install an information system that would allow monitoring of the overall flow of foreign exchange in China. It would assist authorities in taking prompt measures, Feng said.

Feng said foreign exchange crime has subsided since a major crackdown was launched in 1998 on foreign exchange fraud which was exacerbated by the Asian financial crisis.

The 1998 campaign discovered criminal cases that involved huge amounts of foreign exchange and were mostly connected to smuggling activities and fraud in export tax rebates, she said.

The criminal behavior was well-concealed because criminals have begun to use more advanced technologies such as the Internet, telephones and telegrams rather than bags of banknotes when trading.

At the beginning of last year, a computer system linking SAFE with customs offices and banks authorized to conduct foreign exchange business was put into use, which made it much easier to find out if customs declaration forms were true or false.

(China Daily April 9, 2001)