China's banking regulators on Tuesday issued rules for commercial banks to
invest client funds offshore, an important step toward opening up foreign
exchange regime.
The regulations, which take effect immediately, are meant to widen the
investment options available to institutional and individual investors, allowing
them to diversify their risks and get better returns, the People's Bank of
China, or central bank, said in an announcement.
"The investment channel for domestic institutions and residents is relatively
narrow and it has been difficult for them to use international financial markets
to improve asset portfolios, spread risks and improve returns," it said.
Currently, most Chinese investors are allowed only to invest in domestic
assets. The new rules only apply to investments made on their behalf by
designated commercial banks.
However, their release follows a decision announced last week sharply
increasing the amount of foreign currency companies and individuals can take
abroad.
Together, they indicate a renewed loosening of controls, Jonathan Anderson,
chief Asia economist for the UBS brokerage in Hong Kong, said in a research
report issued Tuesday.
"Simply put, this is the first time that domestic households and firms have
been granted official access to overseas securities markets," Anderson said.
He noted that Chinese hold nearly US$4 trillion (euro3.3 trillion) in local
currency cash and domestic bank deposits. Changes in those holdings could have a
significant impact on foreign exchange flows and foreign capital markets, he
wrote.
The new rules were issued by the central bank, the China Banking Regulatory
Commission and the foreign exchange regulator.
The change in policy reflects growing confidence among Chinese regulators in
bank management and in the national financial situation. It also is meant to
help Beijing to counter the huge surplus in its capital account, the central
bank said.
In introducing the rules, the bank noted that China's foreign exchange
reserves, which stood at US$875.1 billion (euro723.6 billion) by the end of
March, were sufficient to cover purchases of foreign currency for overseas
investments.
However, banks will have to get regulators' approval for offshore investments
and will face quotas, it said.