Policy Update: China to ease foreign exchange management

cctv.com 09-15-2003 16:50

First, in this week's policy update, we will review a notice issued by the State Administration of Foreign Exchange, which eases the controls over some special foreign exchange accounts, including those of the international projects. The notice says the total foreign exchange income of these projects can be held in reserve starting this month. Before that, the international contracted projects could only keep 20 percent of their foreign exchange earnings each year.

The administration says that foreign currency revenue from overseas contract projects, overseas shipping consignments, international transportation and international bidding projects can be placed in foreign exchange accounts from September 1, instead of temporary foreign exchange holding accounts.

Song Guoliang, Professor of Finance Institute, UIBE, 鈥淚 think this time, current accounts will be affected. In the past, the forex accounts system in this regard has been comparatively straightforward. The management process has matured. The income earned in those projects will go to non-financial, non-capital reserves. These funds will mostly be used in the sector of foreign trade and overseas investment, which come under current accounts. In short, that will not affect the capital market and the capital accounts system. It should be a stable transition.鈥

Previously, the administration only allowed Chinese companies with such projects to retain up to 25 percent of their foreign exchange revenues in temporary accounts, based on the previous year鈥檚 foreign exchange earnings. Now the ratio has been increased to 100 percent.

Song also said, 鈥淭here is a growing trend that foreign exchange cpolicies will be market-driven, not government directed. It is a big difference. The forex operations were completely directed by the central government in the past. Now, this is the first step in the change to market-driven operations, reaching beyond the sectors that are involved this time. Because now we have enough forex reserves, it is not necessary to tighten purse strings like before. That could also help China reduce the pressure of appreciation in the RMB.鈥

Professor Song also says that the new policy helps solve the problems of insufficient working capital in company operations, which could greatly increase their competitiveness in the world market. By the end of last month, statistics released by the People鈥檚 Bank of China showed that total outstanding forex deposits in financial institutions amounted to some 150 billion US dollars, among which corporate funds totaled nearly 50 billion, reflecting a two percent annual rise.

Editor:Zhang Wenjie  Source:CCTV.com