Regulations

Even though China in some areas is getting more and more liberal, the financial area is still heavely regulated. When I say the financial area I mean everything from account opening to the currency rate. One reason is of course that by issuing different regulations affecting the financial area you can also to some degree steer the economy in to the "right" direction. During this year we have seen a number of new regaulations aiming to cool down the economy. The very high growth rate last year and beginning of this year have had a very negative effect on the consumer price index, which in turn have an impact on the man on the street.

So this year the authorities imposed a cap on how much a bank can increase the loan portfolio in local currency. Less money to borrow equals less growth which gives less inflation. However, as in so many other cases the market finds new paths, ways, loop holes etc to solve a problem and so has also been the case in China during the year. Money has found its way in to China and it has been in such quantities that the authorities have issued a number of regulations against this type of money, so called "hot money".

And today we have premiere for two of these new anti hot money-rules.

The first rule states that an importing company in China is only allowed to have deferred payments above 90 days equivalent of 10% of last years import. All other payments out of China have to be made within 90 days after the day the goods was declared at the customs.

This have quite an effect on many newly started companies who are importing material to be used in their production. The reason it has an effect is that in many cases the parent is supporting their sibling by giving VERY long payments terms for the material imported. Which of course is a way of supporting the start up with some working capital. But, it should also mean that Chinese importers can only to a limited extent ask for longer payments periods than 90 days.

The second rule valid also from today is relating to pre-payments. From today a company who wants to receive a pre-payment needs to apply for a pre-payment quota from State Admininstration of Foreign Exchange (SAFE). No quota, no pre-payment.

And we banks have been appointed by the authorities to see to that these anti hot money-rules are follwed.

Hakan