China has scrapped a set of
rules that provided incentives for exporters to bring home as much foreign
currency as they could, signifying another step in its efforts to ease capital
In the wake of the Asian financial crisis in the late 1990s, China introduced
a series of measures encouraging exports and inflows of foreign exchange, to
help boost its financial footing.
Its capital and current account surpluses have since soared, and the central
government is now trying to reverse the situation to ease the upward pressure on
the yuan created by such inflows.
The State Administration of Foreign Exchange (SAFE) said on Monday that it
had rescinded, as of July 1, a set of rules dating back to 1999 that had
provided incentives for exporters to exchange their forex earnings with banks in
a timely manner, as well as punishments for those that did not.
The agency said that while the rules had been appropriate at the time and
played a big role in encouraging the country's accumulation of foreign exchange,
they were now being cancelled "in line with the present needs of economic
The rules had allowed for preferential treatment in customs procedures and
bank lending for export firms with good track records in remitting foreign
exchange, and penalties as severe as revoking of export licenses for the worst
The removal of such incentives complements initiatives to encourage capital
outflows, such as the Qualified Domestic Institutional Investor (QDII) scheme,
which allows financial institutions to invest client funds overseas.
Economists say that with massive inflows of foreign currency from the trade
surplus and investment, it will be increasingly difficult for the central bank
to control growth in money supply if it continues to attempt to keep the yuan
from appreciating too sharply.
The foreign exchange regulator has accordingly been adjusting its supervision
of capital flows, stepping up oversight of speculative inflows betting on yuan
appreciation while also making it easier for companies with good track records.
To that end, SAFE last year earmarked 5,300 firms as "needing special
attention" -- meaning they were suspected of dealing in "hot money" through
disguised trade flows.