In an effort to fight money laundering and better manage currency transactions, the State Administration of Foreign Exchange published new regulations Tuesday that will affect individual non-residents. The rules will take effect next month.
 
Foreign exchange transactions by non-residents have been growing continuously since China entered the World Trade Organization more than two years ago, prompting the State Administration of Foreign Exchange (SAFE) to develop new and separate regulations for this group, a SAFE spokesperson said Tuesday.

Individual non-residents are foreigners, residents of the Hong Kong and Macao special administrative regions and Taiwan, and individuals who hold a Chinese passport but have permanent residency outside China. Forex behavior of these groups, said the spokesperson, is markedly different than that of mainland residents.

The regulation aims to prevent money laundering and other illegal cash movements while ensuring that legal uses of forex by non-residents, such as shopping, travel and purchase of real estate and B shares, are protected.

The administration found irregularities among non-resident individuals last year during an inspection of forex operations at designated banks, he said.

Analysts say the new regulations will help curb money laundering and illegal inflow of renminbi speculation funds.

In the years following the Asian financial crisis, Chinese individuals and corporations favored foreign currencies over the renminbi. Many tried to keep their forex assets abroad--which is forbidden by Chinese law--for fear that the local currency would depreciate.

That trend did an about-face in 2002. People started to convert their forex holdings back into renminbi as international pressure on China mounted to let the yuan appreciate on the back of the country's growing economic clout.

But along with those holdings came speculative funds. Regulators went on alert, as excessive short-term capital inflows are seen as potentially disruptive to financial stability.

"Now supervision is tighter, and the inflow (of illegal funds) will be more difficult," said Wang Yuanhong, a senior analyst with the State Information Center.

Under the new rules, non-resident individuals can hold, deposit or sell to banks the forex they bring from abroad. However, non-residents will have to show their ID when opening a forex account and other documents when depositing more than US$5,000 a day.

Regulators are closely watching the sales of forex to banks, as this can lead to greater upward pressure on the renminbi. The new regulations require individuals to obtain approval from local regulators when their monthly sales surpass US$50,000.

They are also required to bring their ID and other documents and fill out forms when selling more than US$5,000 in a single transaction.

The purpose of the new measures is to collect data on forex receipts and payments of non-resident individuals, help banks verify transactions and assist regulators in forex management.

The new regulations are not expected to have a negative impact on the normal use of forex by non-residents, the spokesperson said.

(China Daily February 25, 2004)