China curbs forex rules for firms expanding overseas

Chinese firms will be allowed to use foreign currency loans they acquire from domestic banks to finance operations overseas starting on July 1.

This was announced by the State Administration of Foreign Exchange.

The new rules also simplify procedures and eliminate some approval requirements for Chinese firms and their affiliates to transfer foreign currency in and out of the country for the purpose of direct investment.

Previously, domestic companies were subject to a quota on the transfer of their domestic foreign exchange holdings to overseas affiliates, and the amount exceeding the quota was subject to administrative controls.

Companies can complete their transaction at designated banks after registering with local branches of the state administration.

"The administration is improving the foreign exchange management of overseas investment and guarantees, so as to encourage and guide healthy development of private capital investment overseas," the statement said.

For the first time individuals will be allowed to act as a co-surety to provide guarantees for loans.

China is encouraging the use of private capital in domestic companies' overseas expansion by simplifying and expanding foreign currency financing channels, and by allowing individuals to act as guarantors during fundraising.

The move represents another incremental step by China to reduce its complex system of capital controls and allow funds to flow more freely in and out of the country.

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