The mainland's foreign exchange regulator is tightening controls on currency settlements made by foreign-invested companies, the latest attempt to stem a tide of international speculative capital flowing into the country.
The State Administration of Foreign Exchange will extend checks on companies' capital and monitor flows of domestic currency earned from foreign exchange settlements, according to a report in yesterday's Shanghai Security News.
'The regulations are designed to improve foreign-invested firms' management of foreign exchange, facilitate capital verification and settlement of payments, and regulate foreign-exchange designated banks and accounting firms,' the report said, quoting a SAFE official.
The regulations appear designed to prevent foreign-invested firms from inflating their registered capital requirements, one way of converting more foreign exchange into yuan to profit from its appreciation.
Specifically, foreign firms would be barred from using domestic currency gained from currency settlements to invest in the mainland's volatile stock and property markets, the report said.
'This is not a massive conspiracy by foreign companies to bring speculative money into the country but a rational response, mainly using legal channels, to expectations of yuan appreciation,' said Logan Wright of Stone & McCarthy Research Associates.
