China on Friday issued joint regulations that will open up the channels for
Chinese institutional investors to invest abroad and relax controls on Chinese
firms and individuals buying foreign exchange.
The long-awaited moves to allow more outflows of foreign currency, which
would decrease upward pressure on the yuan, come before a visit to the United
States by Chinese President Hu Jintao later this month and follow China's
foreign reserves surpassing of Japan's as the world's largest.
China's end-February reserves stood at $853.6 billion, prompting calls by
government researchers for China to rein in their rapid growth.
The central bank said in a statement on its Web site (www.pbc.gov.cn) that it
would allow banks and fund managers to invest overseas on behalf of individuals
and institutions.
Banks may convert domestic currency held by individuals or institutions in
order to invest in overseas products with fixed returns, the central bank said.
Funds will be able to invest individuals' or institutions' foreign currency
holdings in overseas securities products, including stocks and bonds.
The new policy also allows insurance companies to invest in foreign
fixed-income assets and money market paper.
China has long said that it would let authorized institutional investors
channel part of their funds overseas, in what has been referred to as the
Qualified Domestic Institutional Investor (QDII) scheme.
The central bank did not say when the investment policies would take effect.
A second announcement issued by the State Administration of Foreign Exchange
on the central bank's Web site relaxes the controls on foreign exchange
accounts, simplifies approval procedures for foreign exchange payments in the
service trade and makes it easier for corporations and individuals to buy
foreign currencies.
The administration said it would raise the foreign exchange holding limit for
domestic firms with experience in foreign exchange.
It said it would raise to $500,000 from $200,000 the limit on forex accounts
for firms new to the foreign exchange market, and that it would allow
individuals to buy up to $20,000 in foreign exchange a year.
The administration said the regulations on foreign
exchange would take effect May 1.