SAFE to loosen rules on FDI

China's foreign exchange watchdog announced over the weekend it will simplify the rules governing foreign direct investment (FDI), the latest effort to deregulate and push forward the yuan's convertibility under the capital account and internationalization of the currency.

The State Administration of Foreign Exchange (SAFE) will abolish 24 regulations for foreign exchange registration, opening accounts, remittance, clearing and settlement, according to an announcement on its website Saturday.

SAFE said the new rules, effective from Monday, will offer a registration system for FDI and outbound direct investment (ODI). In December 2012, SAFE already cut 35 administrative reviews and approval procedures and simplified 14 others.

"It is a measure to facilitate foreign direct investment and a signal affirming that the yuan will be convertible under the capital account in pilot cities and regions of financial reform," Sun Fei, director of the China Enterprises Overseas Development Center, told the Global Times Sunday.

It also shows that SAFE is following up on the State Council's recent decision to accelerate financial reform this year, Sun noted.

On May 6, at a meeting of the State Council, Premier Li Keqiang called for a cut in red tape and unnecessary administrative approval procedures in order to accelerate reforms. Li said at the meeting that the government would work on a plan for the yuan's convertibility under the capital account, though he did not offer a timeline.

China gained $29.9 billion of FDI in the first quarter of this year, up 1.44 percent from a year ago. FDI for 2012 fell by 3.7 percent, due to the sluggish global economic recovery.

The tougher previous rules could not reveal the real picture of FDI as it came in different forms to avoid the regulations, Li Youhuan, an economist with the Guangdong Provincial Academy of Social Sciences, told the Global Times Sunday.

Moreover, growth in FDI is not as strong as before, so there is no need to stick to the tougher rules, Li noted.

The new rules will allow SAFE to get to know the real situation of capital inflow and outflow, he said.

The capital account information system that was launched in December 2012 has strengthened supervision of capital inflow and outflow, SAFE said in the statement.

There has been a massive capital inflow since early this year, including the unexpectedly high 14.7 percent year-on-year rise in exports in April, indicating a surge in hot money, Xu Hongcai, a scholar at the China Center for International Economic Exchanges, a government think tank, was quoted by China National Radio as saying Sunday.

"When the yuan appreciated against the US dollar, people learned the secrets of how to gain from the onshore-offshore differences between currencies and rates," and that brought in hot money, Lu Ting, China economist at Bank of America Merrill Lynch, said in a research note Friday.

The yuan has appreciated by 1.5 percent against the US dollar so far this year, compared with a rise of just 0.26 percent for the whole of 2012.