The State Administration of Foreign Exchange (SAFE) Monday announced measures which will boost the flow of foreign direct investment (FDI) into China.

SAFE issued a circular, upgrading rules related to FDI. The rules will come into effect on April 1.

They contain a broader array of funding sources that foreign investors can use as their stakes in Sino-foreign joint ventures, and clarify procedural matters regarding FDI-related forex administration.

The purpose of the rules is to "adapt to the new trends in international investment, attract foreign capital by a multi-channel approach, continue to optimize foreign direct investment-related foreign exchange management and further improve the environment for foreign investment," said a SAFE spokesman.

Foreign investors that have not yet established enterprises in China can now open four types of special forex accounts - investment, procurement, expenditure and guarantee - to meet their operational needs, the circular said.

They can, with SAFE approval, use deposits in non-resident non-cash personal accounts opened in China as their stakes in Sino-foreign joint ventures (JVs), or use funds in offshore accounts opened at designated Chinese banks for the same purpose, without permission from SAFE.

The circular also authorizes an additional list of sources, including foreign-invested enterprises' reserves, undistributed profits, and proceeds from transferring shares in foreign-invested enterprises, for foreign investors to set up Sino-foreign JVs. Previously, they could use forex cash, intangible assets and renminbi-denominated profits.

Analysts said the circular aims to further boost FDI inflow, which already played an important role in ensuring China's robust 7.8 percent gross domestic product growth rate last year.

China overtook the United States for the first time last year as the world's biggest FDI recipient, attracting US$52 billion.

And the outlook is rosy. Long Yongtu, secretary-general of the Bo'ao Forum for Asia, told reporters on the sidelines of a forum on Saturday that he was "confident" with China's foreign direct investment in the years to come.

"But we cannot be blindly optimistic," said Long, also a former vice-foreign trade minister. "Whether the funds come or not depends on whether the returns are high or not."

The newly approved Ministry of Commerce, unveiled on Friday on the basis of the former foreign trade ministry, would take measures to ensure consistency and stability in China's foreign direct investment policies, he said.

(China Daily March 25, 2003)