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China to reform cross-border forex management as exports remain weak

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(Globalpost/GlobalPost)

BEIJING (Reuters) - China's State Administration of Foreign Exchange will reform the management of cross-border foreign exchange guarantees, the regulator said on its website on Monday.

SAFE will cancel or greatly simplify approval of the guarantees, standardize their management and ensure all foreign firms are treated the same, it said.

The move to support trade and ease foreign currency transaction risk follows a government statement last week that it would facilitate trade, as China's exports continue to weaken into the second quarter.

This statement introduced measures including more tax breaks, credit insurance and currency hedging options for exporters.

Some analysts originally believed China's central bank engineered this year's decline in the yuan in an attempt to drive out short-term currency speculators.

But experts now think the decline is meant to cushion the weakening economy by making export prices more competitive.

Hurt by unsteady foreign demand and a rising yuan, China's monthly average export growth last year was about a quarter of the 35 percent seen a decade ago. This meant the sector was a drag on the world's second-largest economy in 2013, with net exports detracting 4.4 percent from overall growth.

Even so, China's trade sector remains a labor-intensive industry and a major employer - an important detail for the government which says job creation is its first policy priority this year.

In last week's statement, the government repeated that it would let market forces have more sway over the yuan's value while increasing the currency's flexibility - both of which would allow China to keep the yuan "basically stable" at a reasonable level.

China's trade partners have in the past accused Beijing of deliberately holding down the currency to lift Chinese export sales. China has always denied these accusations.

(Reporting by Paul Carsten; Editing by Ruth Pitchford)

http://www.globalpost.com/dispatch/news/thomson-reuters/140519/chinas-safe-reform-cross-border-foreign-exchange-guarantee-mana