China tells banks to step up forex checks in special zones

SHANGHAI (Reuters) - China's foreign exchange regulator has told banks to step up checks of companies operating in special economic zones, including bonded areas, as part of efforts to crack down on hot money inflows.

Banks must not provide cross-border loan services to firms that have not been registered with the foreign-exchange authority but are operating in the special economic zones, the State Administration of Foreign Exchange (SAFE) said in a statement on its website. (

Registered companies working within special economic zones would be able to take legal profits derived from exports out of the country, SAFE said, but banks must know the size, duration and remittance arrangements.

China has vowed to crack down on fake trades amid signs that hot money inflows have helped push the yuan to a series of record highs in recent weeks.

Amid the crackdown, a raft of companies, including commodity importers, have been struggling to get trade loans as banks scrutinize their activities and hold back credit as they await further regulatory details.

The latest crackdown mainly targets companies that are heavily involved in buying and selling imported goods stored in bonded warehouses within China's tariff-free areas.

Banks should also make sure that companies applying for trade loans should bear the same name as cargo receivers labeled in import documents, SAFE said, a move which industry sources said would help stamp out fake trades.

The country's currency regulator has said it will issue warnings or even blacklist firms that are unable to provide satisfactory explanations for the gaps in their trade activities.

China ran a capital and financial account surplus of $102 billion in the first quarter, up from $20 billion in the fourth quarter of last year, reflecting the heavy capital inflows.

(Reporting by Fayen Wong and Adam Jourdan; additional reporting by Polly Yam in HONG KONG; Editing by)