China Eases Foreign Investment Rules

by Mary Swire, for LawAndTax-News.com, Hong Kong

18 April 2006

Last Friday the Chinese authorities issued regulations which will allow Chinese institutional investors greater freedom to invest abroad and also eased the controls on foreign exchange purchases by Chinese firms and individuals.

The new investment rules from the State Administration of Foreign Exchange allow professionals to buy overseas stocks and make investments outside of China. Chinese individuals will be able to buy up to US$20,000 in foreign currency each year, while companies will be able to hold more in foreign currencies than currently allowed. The foreign exchange changes take effect on 1st May.

Banks and fund managers will be allowed to invest overseas on behalf of individuals and institutions. They will be able to convert domestic currency held by individuals or institutions in order to invest in overseas products with fixed returns. Insurance companies will be able to make direct investments in foreign fixed-income assets and money market paper.

The Foreign Exchange administration also said it would raise the limits on foreign exchange holdings for experienced domestic dealers, while the limit for new dealers would be raised from US$200,000 to $500,000.

The moves were welcomed by the US Treasury, which said however that the Chinese were still moving too slowly with currency reform.

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