The Chinese government launched new rules over the weekend, such as detailing the content of the foreign exchange purchasing application form and compiling a "blacklist" for illegal foreign exchange transactions, in an effort to "close the loopholes" in the domestic foreign exchange purchasing system.
Experts told the Global Times on Monday that it is necessary for the government to use administrative measures to manage foreign exchange transactions, at a time when the global economy is shaky and capital outflows continue to grow.
The Global Times downloaded the new application form from the online version of the Industrial and Commercial Bank of China. The new foreign exchange purchasing application form asks foreign currency buyers for new information, such as detailed information of their buying purpose and how long they plan to hold it.
Detailing the purpose of foreign exchange reserves is an effective way to curb speculative foreign exchange purchases, said Dong Dengxin, a professor at Wuhan University of Science and Technology.
"For example, some people increase their US dollar assets by accumulatively using their annual $50,000 quota to buy foreign currency. But if you need to fill in a specific purpose, such as tourism, you can only buy dollars equivalent to that purpose," Dong told the Global Times on Monday.
The State Administration of Foreign Exchange (SAFE) also demanded that banks shoulder more of the responsibility for reviewing the compliance of foreign exchange transactions, according to a statement SAFE published on Saturday on its website.
Banks are required to report all yuan-denominated cash transactions exceeding 50,000 yuan to the People's Bank of China (PBC), the country's central bank, according to a document released by the PBC on Friday. Prior to the change, the threshold was 200,000 yuan.
SAFE also stated that it will increase the penalties for illegal foreign exchange transactions such as illegal transfers, false declarations and currency swindling.
According to the SAFE, people who conduct such illegal transactions will be put on a "blacklist," and will be restricted or prohibited from buying foreign currency for two years.
Also, currency buyers can be fined up 30 percent of the amount traded if they use the currency for purposes other than the ones they stated on the form, according to the new application form downloaded by the Global Times.
Although the government has intensified administrative measures for managing foreign exchange, the current rules still give full respect to market demand, Dong noted.
"They are not capital controls," he said, adding that it's understandable that the government would increase management of the foreign exchange transactions at a time when capital flight is on the rise in China.
