Tuesday 4 November 2008

Trade debt rules seen as check on capital outflows

Mainland companies must register their claims to debts arising from overseas trade, the foreign exchange regulator said, in an apparent move to tighten controls and prevent capital outflows from the country.

1 comment:

Guanyu said...

Trade debt rules seen as check on capital outflows

Companies must register claims

Reuters
4 November

Mainland companies must register their claims to debts arising from overseas trade, the foreign exchange regulator said, in an apparent move to tighten controls and prevent capital outflows from the country.

The State Administration of Foreign Exchange (SAFE) said in a notice that claims requiring registration consist of advance payments by mainland firms for imports and deferred payments owed to them for exports.

It listed the new requirements in a notice dated October 30.

“I think definitely there is a risk that money will leave China. I don’t think it has begun yet but I think it will begin soon,” said Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong.

“I think foreign debt is a big issue ... inflows have definitely dried up,” he said, adding that the SAFE move might help authorities assess the risk of outflows.

There are signs that the authorities are worried about a sudden outflow of capital as the country’s economy is slowing amid the global financial crisis and its asset prices are falling.

The mainland’s central bank, for instance, has tried to keep the yuan stable since mid-July, when the dollar began a strong rally globally and has since jumped about 20 per cent against a basket of major world currencies.

“The notice is issued in order to establish healthy supervisory and management mechanisms of foreign debt claims, regulate capital flows across the board and promote a balance of international income and payments,” SAFE said.

From November 15, all companies must register their import contracts within 15 working days after they are signed and register their planned advance payments 15 days ahead of the actual payments, the new rules said.

When the imports arrive at customs or if the goods fail to arrive and the companies are paid back, the companies must cancel the registration within 15 days.

The government will set a quota for advance payments in line with a company’s previous business dealings, and generally this is not to exceed 10 per cent of total import payments in the previous 12 months.

Companies which do not cancel their registration 30 days after advance payments are made and cannot justify the delay will be placed on a list to be monitored by SAFE.

The registration mechanism for deferred payments for exports is to be announced later.