Gov't supports legitimate overseas investment
The "repatriation of normal profit" by foreign companies in China is not restricted and the government supports legitimate overseas direct investment by "capable domestic firms," the State Administration of Foreign Exchange (SAFE) said on Tuesday.
The foreign exchange regulators will step up efforts to improve trade facilitation, according to a statement on SAFE's website on Tuesday, citing the head of SAFE Pan Gongsheng's meeting with the EU Chamber of Commerce in China President Jorg Wuttke in Beijing on Monday.
SAFE will also tighten scrutiny of the "authenticity and regulatory compliance review" of outbound investment, in a bid to ward off risks associated with cross-border capital flows and maintain the sound development of China's foreign exchange market, the statement noted.
The comment came after the regulator announced steps to tighten its grip on individuals' foreign exchange transactions, which rattled domestic and foreign investors who are concerned about capital flight.
On Monday, the Financial Times reported that Chinese regulators are imposing stricter capital controls, as banks in Shanghai must "import 100 yuan (.58) for every 100 yuan they allow a client to remit overseas." The move aims to crack down on a new way to avoid capital controls, where speculative buyers first remit yuan offshore and then convert the money to other currencies.
"Rumors have been spreading in the market, and the SAFE's announcement is meant to reassure foreign companies that stronger foreign exchange controls will not impact their normal operations in China," Liu Xuezhi, a macroeconomist with the Bank of Communications, noted that money laundering and speculative purchases are the targets of SAFE's recent regulations.
The statement showed that the internationalization of the yuan is still a priority for the Chinese government. It also sent a signal to domestic companies that are interested in the global market, according to Liu.
"The country still encourages its companies to go global, especially along the 'One Belt, One Road' initiative," Liu said.
The National Development and Reform Commission said in December that the government will closely watch "irrational outbound investment." But the nation encourages real and effective outbound investment, especially involving the "One Belt, One Road" initiative.
Domestic banks' net sales of foreign exchange fell to 7.7 billion in 2016 from 5.9 billion in 2015, showing that overseas capital outflow pressures eased.