The government is ready with new rules to tighten control over speculative capital inflow from abroad, or "hot money".

The move follows economists' warning that hundreds of billions of dollars in illegal capital have entered the country in the garb of normal trade.

The new system will make it mandatory for companies to provide evidence to the State Administration of Foreign Exchange (SAFE) for verification from July 14.

Exporters will be required to park their export receipts in temporary verification accounts till they are cleared as genuine trade revenue, according to a statement issued by the SAFE, the Ministry of Commerce and the General Administration of Customs (GAC) on Wednesday night. The new rules are aimed at stopping overseas traders from inflating their invoices to bring in more foreign money.

Inflating invoices is believed to be a common way of pushing overseas speculative capital into China.

Traders will have to report advance payments for exports and deferred payments for imports, too, because either of these channels can be used to bring in "hot money".

The new rules make it clear that the annual deferred payments for exports should not exceed 10 percent of a trader's total payments for exports in the previous year.

The SAFE will work with the Ministry of Commerce and the GAC to implement the new rules through a nationwide computerized network. Banks' computers will be linked to those of the Customs to crosscheck data.

The departments used to monitor trade-related foreign capital flows separately, an arrangement that has not proved effective.

The collaboration will make the regulation more effective, said Zhang Ming, an economist with the Institute of World Economics and Trade of the Chinese Academy of Social Sciences.

(China Daily July 4, 2008)