SHANGHAI, August 7, 2008 (AFP) - China has updated key foreign exchange rules for the first time in 11 years, hoping to step up monitoring of fund flows and limit growth of its massive foreign exchange reserves, the government said.

The rules allow foreign companies to issue securities in China, according to a statement posted late Wednesday on the central government website.

According to the revised rules, domestic companies will also be allowed to keep their foreign exchange income abroad, compared with compulsory repatriation before.

The revisions of the rules, last changed in 1997, also impose tougher punishment on people who violate regulations on cross-border transfers and conversion of foreign exchange funds.

Illegal conversion could trigger penalties of up to 100 percent of the funds, according to the revised rules, which take effect immediately.

The change is meant to help better regulate foreign exchange fund flows, officials from the central bank and the foreign exchange regulator said in remarks published by the state-run Xinhua news agency late Wednesday.

The officials said the revisions will help China tackle the country's swelling foreign exchange reserves, which topped 1.8 trillion dollars by the end of June, describing the reserves growth as 'excessively fast'.

The revisions will also set the stage for further reforms of the Chinese exchange rate mechanism, the officials said, without providing more details.