Milestone for yuan liberalisation
Monday, January 20, 2003
biz.scmp.com
MARK O'NEILL in Beijing and BEI HU
China has taken an important step towards the convertibility of the yuan by liberalising rules under which companies that invest abroad exchange their yuan for foreign currency, according to state media.
The State Administration of Foreign Exchange (Safe) has introduced the new rules on an experimental basis in Zhejiang and Guangdong provinces and Shanghai, and plans to extend them to a further three provinces.
When conditions were ripe, the rules would be introduced nationwide, the official Business Post newspaper reported yesterday. The report came on the eve of a top-level national financial conference later this week, which will table measures to accelerate China's financial reforms.
Changes widely expected to be considered at the annual Central Financial Works Conference include the creation of a separate body to take over the banking regulatory role of the central bank - the People's Bank of China (PBOC).
The conference traditionally takes place along with national meetings of the country's three key financial sector regulators.
A national meeting of PBOC branch chiefs had been scheduled for Wednesday to Friday, the Beijing Morning Post reported.
The China Securities Regulatory Commission and the China Insurance Regulatory Commission, will convene their national conferences around the same time.
The meetings have stoked hopes that the split of the PBOC's sometimes conflicting roles as banking regulator and central bank could be completed this year.
Safe introduced its experimental foreign currency rules in Zhejiang on October 1 last year and in Guangdong and Shanghai on December 1. It will later introduce them in Jiangsu, Shandong and Fujian. It has placed a ceiling of US$200 million on the amount that can be approved in each of the six places, a total of US$1.2 billion.
Previously, under rules published in 1989, it was possible but difficult for Chinese firms to obtain the foreign exchange they needed to invest abroad - to set up offices, acquire foreign firms or build new factories.
They needed permission from Safe, the Ministry of Foreign Trade and Economic Co-operation and the State Development and Planning Commission and had to meet many requirements, including having their own foreign exchange, posting a deposit, having a risk investigation, obtaining permission for an increase in capital and explaining how they used their profits.
The requirements were particularly onerous on private companies. As a result, 80 per cent of the 6,000 Chinese firms that had invested abroad were state companies and the investment amount was a fraction of the foreign capital that had poured into China. Also, the requirements were so strict that many firms ignored them, parking foreign currency abroad and using it as they wished.
Under the new rules, firms do not need to have their own deposits of foreign exchange, there is no ceiling on an individual investment, no requirement for a deposit and the company is allowed to retain its profits abroad to use at its own discretion.
As for increasing the capital of the investment or re-investing, the firms only have to report them and do not need approval.
In the two months since Zhejiang implemented the rules, firms have obtained approval to exchange yuan for US$11 million for foreign investment.
Wang Yafan, head of the bureau for managing capital projects in Safe, said China was pushing reform of its foreign exchange system and liberalisation of the capital account was a very important issue. |
