China eases forex rules for overseas investment

12 June 2009

China is loosening its grip on the country's forex reserves by encouraging Chinese firms to invest overseas, thanks to its $1.95-trillion foreign exchange and gold reserves and another $900 billion in private holdings in foreign financial assets, (See: China's foreign assets jump to $2.92 trillion in 2008).

Last year, the country allowed its exporters to keep a major part of their profits abroad in Chinese overseas banks.

The country's forex regulator, State Administration of Foreign Exchange (SAFE), yesterday said at a press conference that it would allow Chinese companies to invest in up to 30 per cent in the equity capital of a foreign business with effect from 1 August.

Liu Guangxi, the official from SAFE, said that with relaxing of forex spending norms, Chinese firms would get extra follow-up funds for overseas investments, which had been difficult to come by in the current global financial crunch.

Though they will still require approvals from SAFE for their overseas investments, the process of approvals and forex remittance procedures would be simplified.

China is following Japan's lead by easing its foreign exchange rules to facilitate overseas investment during the early 1970s, making all overseas investments a matter of automatic approval.