China Sets Up Forex Operation For Shenzhen Export Zone

The Chinese authorities have established a foreign exchange trading operation at the Shenzhen export processing zone in a bid to marginalise illegal forex dealers and to offer investors a legal conduit through which to buy and sell forex, officials say.

The Shenzhen Foreign Exchange Trading Centre (SFETC), with a paid-up capital of HK$ 100 million, is jointly owned by the Chinese State Administration of Exchange Control, the People's Bank of China and 14 Chinese banks. "Our exchange rates are identical to those offered in Hong Kong because our operations are closely linked to the Bank of China's group treasury centre," says SFETC spokesperson Liu Ning. "The Bank of China in Hong Kong also supplies the forex or acts on our behalf in the trades."

From a standing start in late May, the centre now offers eight currencies ( yen, Deutsche mark, Hong Kong dollar, Canadian dollar, British pound, French franc, Swiss franc and Australian dollar) but opening hours are restricted to 8.30 a.m. to 5.30 p.m. Daily transactions have been averaging a modest HK$30 million but plans exist to increase trading to 20 hours a day. "Our purpose is to offer legitimate forex trading for both individual and institutional investors," says Liu.

Officials say the SFETC will later extend its services to margin trading, inter-bank foreign exchange trading and securities. "At the start the most important priority is to educate our clients and allow them to become familiar with trading, " says Liu.

The Chinese action is partly a reaction to the sudden influx of private forex companies seeking to relocate from Hong Kong to avoid the new law proposed for the British colony to regulate leveraged foreign exchange trading, sources say.

Under the new framework in Hong Kong, from this month, companies engaged in leveraged foreign exchange trading and their representatives will require a licence from the local Securities & Futures Commission. Licences will be restricted to traders which have a minimum paid-up capital of HK$30 million.

"The intention is to ensure that only those with sound financial backgrounds and proven integrity will be allowed to conduct foreign exchange business," says Michael Cartland, the Hong Kong government's secretary for financial services.