China detects illegal capital inflows

China's foreign exchange regulator said on Friday it had detected some irregularities in the make-up of the country's capital inflows and that it would do more to clamp down on illegal transfers.
In a statement, the State Administration of Foreign Exchange (SAFE) gave few details on the nature of the irregularities, saying they were related to trade and investment flows. "According to our understanding and the information that we have, abnormal phenomenon do exist in the trade and investment accounts," SAFE said on its Web site (www.safe.gov.cn).
China has repeatedly pledged to step up its battle against illegal capital inflows amid efforts to slow the accumulation of its foreign exchange reserves, now the world's largest at $1.202 trillion, as of end-March. The findings were part of a nation-wide investigation into foreign capital inflows across 10 coastal regions of the country that began in April.
The initial stage of the investigation was expected to wrap up in May, it said. SAFE vowed to intensify its campaign to stem illegal inflows of short-term capital, which economists say have been spurred by bets on the yuan's further appreciation.
"We will expand and extend our investigations and crack down on illegal capital inflows and sales of foreign currency," it said. SAFE said that China's stash of foreign exchange reserves had triggered concerns over whether the economy could develop in a stable way.
"Foreign capital inflows have shown no sign of slowing down since the beginning of this year. Foreign exchange reserves have risen steadily, and we still face difficulties in trying to bring more balance to our international balance of payments position," Hu Xiaolian, who heads SAFE, said in a statement.
SAFE said that the 10 regions at the centre of its investigations accounted for more than 60 percent of total foreign exchange turnover in China. The regulator had largely focused on activities that had taken place between January last year and March 2007, it said.
SAFE was looking closely at trade-related foreign exchange deals, paid-in capital of foreign-invested firms, debt and trade credit financing and capital inflows related to property and stocks. It was also investigating capital entering China through unlicensed brokers. In the statement, Hu also reiterated China's plan to gradually move towards full convertibility of the yuan and to encourage capital outflows.