China’s State Administration of Foreign Exchange (SAFE) has cut banks’ short-term foreign-debt quotas to ensure financial stability in the face of rising speculative capital inflows, the Wall Street Journal reported. The new requirement will have a greater effect on foreign lenders than domestic ones, as foreign banks in China have higher overseas debt holdings and lower depositor bases than their domestic counterparts. Foreign banks were instructed to reduce foreign debt by 10-15% for the year beginning on April 1, while Chinese lenders’ quotas were lowered by 5%. Figures released this week put "hot money" inflows to China for the first three months of 2008 at US$80 billion, three times the amount of the previous quarter.
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