China to strengthen management of cross-border capital flows

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BEIJING, Jan. 30 – China’s foreign exchange regulator said yesterday it will strengthen management of cross-border capital flows and short-term bank borrowing in 2008.

The State Administration of Foreign Exchange will conduct checks on cross-border capital flows, paying particular attention to how foreign currency converted into yuan is used in China.

China faces increasing pressure from the United States and the EU due to its large foreign exchange reserve and growing trade surplus. At the end of 2007, the foreign exchange reserve was US$1.53 trillion, up 43.3 percent year-on-year.

Over the last year, the government took steps to address the trade imbalance including issuing new restrictions on processing trade. China has also encouraged companies and individuals to hold foreign currencies and invest abroad to reduce reserve pressure.

Last August, the government scrapped limits on companies converting current account foreign exchange holdings into yuan according to China Daily. They can now hold all foreign currency revenue from trade instead of converting part of it to yuan.