Accessibility links

China Relaxes Controls on Foreign Currency, Overseas Investments

  • Daniel Schearf

China has loosened some controls on foreign currency flow and investments abroad. The changes come days before President Hu Jintao visits the United States, where China's control over its currency has been blamed for adding to China's large trade surplus.

China Friday issued new regulations to take effect May 1 making it easier for companies and individuals to buy foreign currency and invest abroad.

The new rules will allow China's banks to pool yuan deposits for conversion into foreign currencies and investment overseas. Fund management firms and insurance companies may also invest abroad.

The amount of foreign currency companies can hold will also increase and individuals will now be able to buy up to $20,000 a year.

Stephen Greene, a senior ecconomist at Standard Chartered Bank in Shanghai, says increasing foreign currency outflow will reduce China's foreign currency reserves and ease pressure on China's currency, the yuan, also known as the renminbi.

"Over the medium term there is going to be a huge demand by Chinese households - the new middle class - to take some of their savings and buy U.S. treasuries or Hong Kong shares or Japanese equities. And so, that means there will be a lot less pressure on the renminbi because there will be outflows as well as inflows to the currency," said Greene.

Over the years, China has kept strict controls over its currency, pegging it to the dollar for years before letting it trade against a basket of currencies last July.

The United States and other trading partners have put pressure on China to further revalue the yuan, which they say is partly to blame for China's growing trade surplus.

Chinese President Hu Jintao is to meet President Bush at the White House next week for talks that will include trade and currency issues.

XS
SM
MD
LG