China FX regulator says to tighten monitoring

SHANGHAI, May 9 (Reuters) - China will step up its monitoring and supervision of cross-border capital flows because of the risks they pose to its financial system, the head of the country's foreign exchange regulator said on Friday.

"In the process of opening up the capital account, we must enhance supervision to prevent risks," Hu Xiaolian, head of the State Administration of Foreign Exchange and a vice governor of the central bank, told a financial conference.

"Cross-border capital flows can pose sudden and highly infectious risks."

Earlier in the day, Vice Premier Wang Qishan also told the conference that China intended to strengthen its supervision of capital flows. Neither Wang nor Hu elaborated on what measures would be taken.

Hu reiterated that China would keep its gradual approach to reforming its foreign exchange system in a stable way.

"China will maintain its own approach in opening up the capital account because it faces a completely unique environment," she said.

Large and complex global capital flows mean China has to be cautious with reform, which will be conducted in line with its economic situation, the maturity of the market and the ability of companies and regulators to deal with changes, she said.

She added that capital account reform also needed to be coordinated with other economic and monetary policies.

At the end of March, about $40 billion of funds had been sent overseas under China's Qualified Domestic Institutional Investor programme, launched in 2006 to permit Chinese to invest in foreign financial markets, she said. (Reporting by Zhou Xin; Writing by Andrew Torchia; Editing by Edmund Klamann)