Jun. 11 – Beginning August 1, Chinese companies can now use their foreign exchange funds or buy from the state reserve to fund overseas ventures; easing rules for overseas investments.
According to the State Administration of Foreign Exchange (SAFE), previously only large multinational companies were allowed to use their forex funds to lend to overseas ventures.
“We had done a stress test, and the maximum possible capital outflow from this new mechanism will be US$30 billion,” a SAFE official, Sun Lujun, told China Daily.
The new rules allows forex outflow to be capped at 30 percent of the parent company’s net assets while also not exceeding the subsidiary’s total investment registered with SAFE. This condition should safeguard against forex outflows having a huge impact on China’s balance of payments.
China is claimed to have the largest forex reserves in the world at US$1.95 trillion in March, according to official data. Last year, China had a total of US$2.9 trillion in foreign financial assets; including forex reserves and private holdings.
The global financial crisis is giving Chinese companies the strategic opportunity to snap up troubled overseas assets as a way of accessing advanced technology. Recently, Sichuan Tengzhong Heavy Industrial Machinery bid for G.M.’s Hummer brand for an undisclosed amount.
There are reports that Beijing Automotive Industry Holding and Geely Holding Group are both interested in buying Ford’s Volvo unit. Major refiner Sinopec is in talks to buy Geneva-based oil and gas producer Addax Petroleum, a deal that could be worth as much as US$8 billion.
Not all Chinese bids for overseas investments are successful though. Beijing Automotive Industry Holding’s bid for G.M.’s Opel unit in Europe did not push through. The Chinalco bid for Rio Tinto’s mining assets were also denied in favor of a joint venture with BHP Billiton and a stock offering to raise needed capital.