China to step up checks on FDI-related inflows

BEIJING, July 18 (Reuters) - China's economic planning agency said on Friday it would step up checks on foreign direct investment (FDI) in order to curb illicit inflows of speculative foreign capital.

China has been struggling against inflows of "hot money", which appear to have risen over the past few months as speculators bet on continuing appreciation in the yuan, helping swell its foreign exchange reserves to more than $1.8 trillion.

The National Development and Reform Commission (NDRC) ordered its local offices to strictly implement existing regulations that require large foreign investments to be approved by the agency centrally and not at the local level.

"Currently, the rules are not strictly implemented in some places and some foreign investments are not property regulated," the agency said in a statement on its website.

"Some investors take advantage of global financial market fluctuations and China's adjustment of its foreign exchange rate to make fake investments, exaggerate the size of the investment or set up shell firms to bring money into China in the name of FDI," it said, noting the risks to the economy from such inflows.

The rules, dating back to 2004, state that investments above $100 million that are in the "encouraged" or "approved" category in the country's foreign investment catalogue need to be approved by the NDRC centrally, not at the local level.

For investments in the "restricted" category, the threshold for central approval is just $50 million.

The agency's notice comes after a recent move by the State Administration of Foreign Exchange (SAFE) to require exporting companies to park their export revenues in temporary verification accounts so officials can check that the invoices are backed by genuine trade transactions and are not being padded. (Reporting by Eadie Chen; Writing by Jason Subler; Editing by Alan Raybould)