The government has scrapped rules that forced exporters to bring
home foreign currency.
The State Administration of Foreign Exchange (SAFE) said that
effective July 1, it had withdrawn the rules - drafted in the late
1990s - that required exporters to exchange all their foreign
exchange earnings with banks in a stipulated period.
Preferential treatment was given to exporters with good records
in converting their foreign exchange and punishment for those that
did not.
The currency regulator said in a statement on its website
yesterday that the rules played a big role in improving the
management of foreign exchange settlement; but the changed economic
situation necessitates a policy change.
In the wake of the 1997-98 Asian financial turmoil, a large
amount of money flowed out of the country, leading to a severe
shortage of foreign exchange. So the government introduced a series
of measures to ensure enterprises settle their foreign exchange
with banks, said Mei Xinyu, a researcher with the Chinese Academy
of International Trade and Economic Cooperation attached to the
Ministry of Commerce.
"Those measures guaranteed macroeconomic stability," he told
China Daily.
Now, the country has US$1.2 trillion in foreign exchange
reserves, which are "having an adverse impact on China's
macroeconomic stability," Mei said.
More renminbi must be channeled into the market to negate the
effect of increasing reserves, which has led to excess liquidity
and pushed up asset prices.
Meanwhile, speculative money has been flowing into the country
in anticipation of profits as the renminbi is rising.
"The authorities can shift their focus to warding off the influx
of hot money," Mei said.
He said it was important for the country to move from a
mandatory foreign exchange settlement regime to a more relaxed
system where individuals and enterprises can opt to keep their
foreign currencies.
(China Daily July 10, 2007)