To allow commercial banks to invest overseas on behalf of their
clients, China issued detailed regulations governing such
transactions.
The People's Bank of China, China's?central bank, says the
move is designed to promote the international balance of payments
and lead to the renminbi being a convertible currency under the
capital account.
Commercial banks must apply for a license and quota from the
China Banking Regulatory Commission (CBRC) and State Administration
of Foreign Exchange (SAFE) separately, the rules posted on the
central bank's website explain.
The rules, which took effect from Monday, did not specify the
quota amount a bank is permitted to invest offshore.
Only commercial banks which are permitted to offer foreign
exchange services, have established an "effective market risk
management mechanism" and have?overseas investment management
capacity and expertise are eligible to apply for a license, the
regulations state.
In particular commercial banks must not have been punished by
the CBRC for asset management irregularities in the past year if
they are to qualify, the regulations make clear.
They also stipulate that commercial banks must have
well-established internal control systems before they can apply for
a license.
The regulations make it clear that commercial banks should take
effective measures to manage foreign exchange rate risks.?
Details of the regulations were issued jointly by the central
bank, SAFE and CBRC, following a statement last week announcing
major capital account reforms.
Commercial banks, fund companies and insurers, the statement
said, would be permitted to invest in foreign financial markets and
this was taken as a sign of acceleration in the country's policy
shift in foreign exchange regime reforms.?
China's foreign-exchange reserves, propelled by a huge trade
surplus and direct foreign investment, hit a record high of
US$875.1 billion at the end of last month--up 32.8 percent from the
year before.
Local and foreign-currency savings reached 31.8 trillion yuan
(US$4 trillion) at the end of March. Around a half of this was from
households according to central bank figures.
"Allowing commercial banks to invest in offshore financial
products on behalf of domestic institutions and householders is an
important measure to broaden investment channels and improve the
international balance of payments," the People's Bank of China said
yesterday.
"It's also a move to meet individual and institutional demand
for overseas financial investment and asset management needs," the
central bank said.
Starting next month individuals will be permitted to buy up to
US$20,000 of foreign currency a year. This is a significant
increase from the previous quota of US$8,000, according to the
announcement SAFE made last week.
(China Daily April 19, 2006)