This content is from: Local Insights


In the wake of Asia's financial crisis, continuing speculation on a Renminbi devaluation appears to have triggered an outflow of foreign currency from China.

To counter the threat to the country's monetary stability, the Bank of China has promulgated new measures which became effective on August 1 1998. The measures are designed to fight the flight from China's Renminbi yuan into foreign hard currencies.

At first glance, China seems to have a double protection against the sudden foreign exchange outflows experienced by most of its neighbours. The country commands huge foreign exchange reserves, second only to Japan's. And the Renminbi is not yet fully convertible so that capital account items remain immobile.

However, as devaluation pressure is building up, holders of Renminbi are tempted to circumvent the already strict forex control regime, often with the help of their banks. Domestic banks and other financial institutions are consequently the main targets of the measures. Sanctioned are, among other things, foreign currency transactions without proper documentation and approval by the State Administration of Foreign Exchange (SAFE).

Financial business affected by the new measures include the issue or prolongation of a letter of credit, import agency contracts, payments on forex current account and capital account items, and the settlement of brokerage fees. Even the personal dealings of private persons exceeding set forex limits might lead to administrative punishment.

Disciplinary measures aim specifically at the personnel directly involved as well as the supervising staff if they fail to stop any wrongdoing. Sanctions range from a warning or severe reprimand to a forced dismissal and, in the case of high-level management, cancellation of professional qualifications. If a certain overall annual amount of illegal forex transactions is reached (US$5 million for fraudulent collusion with a client, US$100 million in certain other cases), all foreign currency business of the financial institution involved may be suspended.

The new measures are complementary to a series of regulations shifting the focus of China's foreign exchange regime from enterprises to financial institutions.

© 2021 Euromoney Institutional Investor PLC. For help please see our FAQs.

Instant access to all of our content. Membership Options | 30 Day Trial