Sunday, December 23, 2007

Chinese School - SAFE lifts forex quotas

BIZCHINA / Center

SAFE lifts forex quotas
By Zheng Lifei (China Daily)
Updated: 2006-06-09 07:06

China will scrap quota restrictions on how much foreign exchange domestic
companies can buy to finance their overseas investments, the latest move
in a string of measures to relax the country's forex controls.

Under the new rules, which will take effect on July 1, domestic companies
will be allowed to use their own foreign exchange holdings, buy foreign
currency from regulators or borrow from both 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, 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, referring to the country's new policy of encouraging
households and businesses to hold more foreign exchange.

"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 the
global market. 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 per cent of global foreign
direct investment last year.

Yesterday's move is China's latest step to loosen its once rigid foreign
exchange controls, a sign that reform of the foreign exchange regime is
gaining steam.

(China Daily 06/09/2006 page9)

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