China relaxes rules on forex use

2004-06-12 15:27

China's foreign-exchange authorities loosened regulatory rules yesterday, granting businesses greater autonomy over their forex earnings.

Analysts said the move reflects boosted confidence in the country's growing foreign reserves.

Starting on October 15, all Chinese firms authorized to conduct foreign-related operations or that have current-account forex earnings, as well as all foreign-funded companies, will be entitled to open forex accounts with a ceiling equivalent to 20 per cent of their current-account forex earnings in the previous year, the State Administration of Foreign Exchange said in a statement.

The firms will still be required to sell the rest of their forex earnings to authorized banks under China's still stringent forex control rules. The yuan currency is still not convertible on the capital account.

The ceiling will stand at 100 per cent of respective forex sources on current-account forex accounts reserved for special purposes, such as donations and international postal remittances, the administration said.

At present, most smaller Chinese firms cannot keep their forex earnings as only those with more than US$2 million in annual export earnings and US$200,000 in annual forex spending can open similar forex accounts.

The new rules will also replace a more complex set of registered capital-based ceiling requirements for such accounts by foreign-funded firms, all of which currently have forex accounts. But the administration stressed that the 20 per cent ceiling is no tighter than the firms' current level of forex autonomy.

The new rules come after a comprehensive analysis and assessment of the current ceiling conditions of foreign-funded companies. The statement said the aggregate scale of ceilings is "basically unchanged" and that the new policy is better suited to firms' operational needs.

The reform aims to promote exports by reducing businesses' costs in settling foreign exchange transactions with banks, unify the regulations on Chinese and foreign-funded companies, pave the way for a transition from forcible forex settlement to a voluntary approach, as well as promote the use of a new forex-account management network, the administration said.

Zhang Yaxiong, senior researcher with the State Information Centre, said: "Most importantly, we now have confidence in foreign reserves, which have been growing rapidly under both the current account and capital account."

Boosted by strong rises in both exports and foreign direct investment, China's foreign reserves soared by 33.2 per cent year-on-year to US$253.09 billion in August.

Zhang said the new rules may slow down the growth in China's foreign reserves but are unlikely to significantly affect the existing amount.