China issued revised regulations on the management of foreign exchange on Wednesday night that provided heavy penalties for improper currency transfer and conversion, among other moves.

The revised regulations took effect immediately. They are intended as a response to the swift growth in the country's foreign reserves, which have soared to US$1.8 trillion, and rising cross-border flows.

Unauthorized inward or outward transfers of foreign exchange will face penalties of up to 30 percent of the capital, under the regulations.

The revised regulations state that relevant government departments should simplify the administrative examination and approval procedure on foreign direct investment exchange management.

Departments were given the right to crack down on illegal foreign exchange inflows, illegal exchange settlement and other improper activities.

The regulation also said that the currency yuan, should be traded among government-approved banks.

It also stated that exchange rate fluctuations should be based on the supply and demand in the market. China lifted the official peg of yuan to the US dollar in 2005, but it still manages the trading range within a daily limit.

The regulation also asked relevant departments to create a fair competitive environment by abolishing the differential policies that applied to domestic and foreign companies, state-owned and private ones, and organizations and individuals.

"The inflow of hot money has had some negative impact on the economy. It is hoped that the regulation can enhance monitoring and control some speculative investment and foreign capital inflows," said Zhang Ming of the Chinese Academy of Social Sciences, a research organization.

(Xinhua News Agency August 7, 2008)