China eases foreign exchange rules

Move expected to boost inbound, outbound investment: experts

China's foreign exchange regulator announced over the weekend it would simplify foreign exchange rules for cross-border direct investment, in a move to further encourage investment and liberalize the economy amid an ongoing economic slowdown.

Foreign exchange registration for foreign direct investment (FDI) and outbound direct investment (ODI) will be exempted from administrative ­approval by the foreign exchange regulator, the State Administration of ­Foreign Exchange (SAFE) said in a statement posted on its website Saturday.

Under the new rules, cross-border direct investors could open foreign exchange accounts in qualified banks directly after providing the banks with registration documents, with no need to get separate government approval, according to the statement.

The new rules will become effective on June 1, it said.

"Simplifying foreign exchange administration on cross-border direct investment will help boost China's FDI and ODI at the same time," Wang Yongzhong, a research fellow with the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, told the Global Times on Sunday.

The current administrative approval procedure for foreign exchange is protracted, with the result that cross-border direct investors might miss their investment opportunities, according to Wang.

Following the implementation of the new rules, SAFE will need to strengthen its supervision of the foreign exchange market in order to stem hot money inflows, Tan Ruyong, a professor of finance at Shanghai University of Finance and Economics, told the Global Times on Sunday.

SAFE said in a statement that it will regulate the inflow and outflow of foreign currency by supervising investors' registration with qualified banks.

"It's the right time to launch the new rules, as the country has adequate foreign exchange reserves to maintain the stability of the foreign exchange market," Wang said.

The new rules are also part of a series of reforms designed to boost investment in and by China.

On January 7, the National ­Development and Reform Commission (NDRC), the country's top economic planner, decided to simplify investment approval procedures by removing 18 items from a list of required documents for enterprises seeking to invest in China.

"The easing process is expected to continue with ongoing negotiations on a series of bilateral investment treaties, which call for further liberalizing ­cross-border direct investment," Wang said.

Those potential liberal policies and the reforms recently proposed by SAFE are expected to boost China's FDI and ODI, Tan said.

According to the latest data from the Ministry of Commerce (MOFCOM), FDI into China soared by 29.4 percent in January from a year earlier to $13.92 billion, the fastest growth in nearly four years.

Meanwhile, China's ODI reached $10.17 billion in January, up 40.6 percent from a year earlier, data from MOFCOM showed.

Following the policy easing, China's ODI is expected to grow rapidly in the coming months amid a slowing economy, while FDI may expand slowly for the whole year, Wang said.

"We predict China's FDI will be stable in 2015," Shen Danyang, spokesperson for the MOFCOM, said at a press conference on February 16.

Earlier ministry data showed that FDI growth for 2014 was 1.7 percent, the slowest since 2012.

Aside from the SAFE-proposed reforms, which should make it more convenient for both domestic- and foreign-invested companies to trade foreign currencies, China should seek to lower market access thresholds and increase the transparency of the investment environment, Tan said.

As China loses its competitive edge on labor-intensive manufacturing due to rising labor costs, the sectors attracting the most FDI have shifted from manufacturing to services. Further opening China's services market to foreign capital will be the most effective way of attracting overseas investment, Wang said.