Quota restrictions on how much foreign exchange (forex) domestic
companies can buy to finance their overseas investments are to be
scrapped by China. This is the latest move in a string of measures
to relax the country's forex controls.
Under the new rules, which take effect on July 1, domestic
companies will be permitted to use their own foreign exchange
holdings, buy foreign currency from regulators or borrow from
overseas or domestic lenders to invest abroad, the State
Administration of Foreign Exchange (SAFE) said in a statement
posted on its website yesterday.
Overseas investments refer to companies setting up subsidiaries
or becoming involved in mergers and acquisitions, the foreign
exchange regulator said.
"The policy revisions will help companies' 'go abroad'
strategies and meet their increasing demand for conducting overseas
investments," it said in the statement.
"The move is not surprising and is in line with the country's
changing forex management policy," said Li Yongsen, an economist
with the Renmin University of China. He was referring to the
country's new policy of encouraging households and businesses to
hold more foreign exchange currencies.
"The new rules which reflect domestic enterprises' growing need
for foreign exchange usage will facilitate their overseas business
expansion," Li said. But he said the move would not see an
immediate surge of overseas investments by domestic companies as
"the new rules only simplify the procedures for firms to buy
foreign exchange."
China is currently encouraging domestic companies to expand into
global markets. China's overseas investment amounted to US$64.5
billion by the end of last year, up from US$52.7 billion the
previous year, according to figures released by the SAFE last
month.
However, it only accounted for a meagre 0.5 percent of global
foreign direct investment last year.
Yesterday's move is China's latest step to loosen up its once
rigid foreign exchange controls which is a sure sign that reform of
the foreign exchange regime is gaining steam.
(China Daily June 9, 2006)