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The State Administration of Foreign Exchange (SAFE) has allowed businesses in five provinces and Shanghai Municipality to purchase foreign currencies for overseas investment.
Each of these regions has been granted a US$200 million quota and enterprises, regardless of their ownership, may apply to purchase foreign exchange to make up for shortages in their overseas investment plans.
The trial programme, which started as early as October in some of those regions, backs a key "go-overseas" strategy which the government is pushing to encourage Chinese companies to invest in foreign markets.
"Currently, the development of China's overseas investments is going well," said Wang Yafan, director of SAFE's Capital Account Department.
Investment strategies and investors have become increasingly diversified, she added.
Wang said the current situation is different from that in 1989 when the existing forex regulation on overseas investment was put forward to tighten the administration of foreign exchange, fight illegal capital flight and maintain the nation's balance of payments.
China has been loosening its tight forex management regime since it entered the World Trade Organization in 2001.
In October, SAFE allowed authorized businesses to keep up to 20 per cent of their forex earnings rather than sell them to designated banks.
Analysts claim the reason for loosening the regulations is greater confidence in China's balance of payments.
China's foreign exchange reserves hit US$286.4 billion at the end of last year, up 34.9 percent from a year earlier.
In the trial programme, businesses are also allowed to keep profits from their overseas investments rather than remitting them back as previously required.
SAFE emphasized that all businesses, including State-owned enterprises (SOEs), private firms and foreign-invested companies, are equal under the new policy.
Analysts said private firms are set to benefit most.
Sources said nearly 80 percent of the some 6,000 Chinese firms operating overseas are State-owned.
Wang said the trial programme would be spread to other parts of the country to amplify the benefits of the policy change. Beijing and Tianjin have already applied to join the programme, she said.
The five provinces currently involved in the programme are East China's Zhejiang, Jiangsu, Shandong and Fujian as well as South China's Guangdong.
She said priority will be given to projects that have strategic importance for the country, foreign aid programmes as well as those industries that are encouraged to develop by the government.
(China Daily January 21, 2003)
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