Foreign exchange rules for FDI to be simplified
July 9, 2012 Category Foreign investment, Weekly
The State Administration of Foreign Exchange (SAFE) is planning to simplify the foreign exchange rules pertaining to foreign direct investment accounts. The plan is another step in the country’s efforts to make the yuan fully convertible on the capital account and to eventually make it a global currency. The acts of opening or adding to foreign exchange accounts for the purpose of foreign direct investment (FDI) will no longer be subject to regulatory examinations. The same will be true for transfers between different foreign exchange accounts. Examinations will no longer be conducted on reinvestments of profits generated by foreign companies in China. There will also be a simplification of the procedures foreign investors must follow when buying Chinese equities in the over-the-counter market and applying for capital verification for investments in Sino-foreign joint ventures. “The move will eliminate a lot of procedures and make foreign direct investment simpler in China,” said Wang Jianhui, Chief Economist with Southwest Securities Co, an investment bank. The report said the procedures for foreign direct investment should be simplified for investments whose purpose is verified and which do not involve speculative capital. Guo Shuqing, Chairman of China Securities Regulatory Commission (CSRC), said that none of the 40 items in China’s capital account is totally unconvertible. To avoid financial instability, China’s capital markets are largely off-limits to foreign investors. Only selected foreign fund managers can invest in China through the Qualified Foreign Institutional Investor (QFII) program. In total, USD80 billion in QFII has been approved. An RQFII program — the “R” standing for renminbi — followed this year. It allows off-shore yuan, accrued mostly through yuan-denominated trade settlements, to flow back to China.
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