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Tougher to Cheat in China



July 03, 2008 – Comments (0)

I recently read an interesting Economist article ((Hot and bothered   Despite strict capital controls, China is being flooded by the biggest wave of speculative capital ever to hit an emerging economy)) about the difficulty of tracking speculative cash rushing into China. Basically, the problem is that it looks too easy to cheat on invoices and sneak money in as if it were part of a regular business transaction.

China is cracking down on that now. Look for some substantial waves as a result. Long run, this is a good thing. China is enough of a Wild West show, and anarchy isn't so desirable in a highly inflationary, swing-prone economy that will someday be the largest on the planet.

BEIJING -- China is toughening the enforcement of its capital controls, announcing a new system for monitoring funds brought into the country by exporters, as it seeks to control the surging fund inflows that are complicating the government's fight against inflation.

The State Administration of Foreign Exchange said in a statement on its Web site that exporters will have to park their revenue from overseas sales in a special bank account for auditing before they exchange it into local currency. The new system, which takes effect July 14, will verify that the invoices match up with genuine transactions and aren't being inflated to bring additional foreign currency into China.

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