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special regulations apply, these units are not permitted
to retain the foreign exchange they have earned, nor can
such foreign exchange be used to pay for their imports. In accordance with the amount of foreign exchange they
sell to BOC and the stipulated foreign exchange retention
ratio (normally ranging from 25% to 40%), these units will
be granted an equivalent foreign exchange quota in their
accounts at SAEC. The cumulative balance in such an
account represents the amount of foreign exchange they are
allowed to use. These units may then use Renminbi to buy
foreign exchange from BOC; in so doing, their foreign
exchange quota accounts at the SAEC will be run down.
9.
(iii) Importance of foreign exchange control in
China's macro-economic policy management
There exists an important link between China's
foreign exchange control and its domestic economic and
monetary policies, as reflected by the fact that the SAEC
is under direct control of the PBOC, China's central
bank. The PBOC will determine the amount of foreign
exchange reserves China has to hold in the light of its
balance of payments position, which in turn is determined by its ability to earn foreign exchange through exports of goods and services relative to its desire to spend foreign exchange on imported goods and services, its net foreign investment flows, and its debt servicing requirements.
Although China's external sector is small compared with
its domestic sector it is clear from the above-mentioned
factors that China's external balance is strongly influenced by the thrust of its domestic economic
activities. To that extent, it cannot be handled
separately from the domestic policy measures designed for controlling aggregate demand and the growth of money supply and credit within the Chinese economy. The
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