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BIZCHINA / News
Curbs on forex holdings scrapped
By Xin Zhiming (China Daily)
Updated: 2007-08-14 09:11
China yesterday scrapped ru
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BIZCHINA / Center
FDI up 13% in 7 months
By Jiang Wei (China Daily)
Updated: 2007-08-14 09:14
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A group of foreign businesspeople at the China International Fair for
Investment and Trade in Xiamen, East China's Fujian Province. [File Photo]
China's realized foreign direct investment (FDI) increased nearly 13
percent year-on-year from January to July, driven by rapid growth in the
real estate, stock and forex markets.
The country received $36.93 billion in FDI in the first seven months of
this year, up 12.92 percent from a year earlier, the Ministry of Commerce
said yesterday. It approved 21,676 foreign enterprises in this period,
down 4.81 percent from last year.
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Foreign investors are expected to set up more operations in China this
year, in particular in the second half, to avail the last opportunity to
enjoy favorable corporate income taxes, said Lu Jinyong, a researcher at
the University of International Business and Economics.
From next year, income tax rates for domestic and foreign companies will
be unified at 25 percent. Domestic companies currently pay 33 percent
income tax while foreign companies, which have tax waivers and
incentives, pay an average of 15 percent.
Foreign enterprises registered before the rate unification will be taxed
at the favorable rates for another five years.
The figures released by the ministry do not include investments in the
financial sector, such as banking, insurance and securities. The ministry
also did not give the amount for contracted FDI agreements yet to be
fulfilled, as opposed to the ones realized.
Lu expects FDI in China's non-financial sectors to exceed $70 billion
this year, compared with $63 billion last year.
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les requiring companies to convert part of
their current-account foreign exchange holdings into the yuan.
Companies used to be allowed to retain foreign exchange equivalent to 80
percent of their revenues in the previous year plus 50 percent of their
expenditure; and the rest had to be sold to the State under the mandatory
foreign exchange settlement regime.
The new rules, effective immediately, will help companies use and manage
their foreign exchange better, and contribute to a more balanced
international payments situation, according to a statement on the website
of the State Administration of Foreign Exchange (SAFE).
The move will ease pressure on the country's foreign exchange reserves,
which continue to pile up, said Zhuang Jian, senior economist at the
Asian Development Bank (ADB) in China.
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Reserves rose to $1.32 trillion at the end of June, compared with $1.06
trillion at the end of 2006. The six-month increment was higher than the
whole-year increase of $247 billion last year.
The country's current account, mostly trade surplus, has been a major
source of the surge.
To ease the pressure from rising reserves, the government now allows
companies and individuals hold foreign currencies and invest abroad.
The latest move will work to reduce China's foreign exchange reserves but
only in the medium- to long-term, Yan Qifa, an analyst with the
Export-Import Bank of China, told China Daily.
In the near term, as the Chinese currency continues to rise, companies
will opt to hold the yuan, not the US dollar, therefore choosing to
convert their foreign exchange with the monetary authorities.
The new rules may make it easier for some companies to invest overseas,
analysts said, but ADB's Zhuang said the country should strengthen
capital outflows.
The short-term, abrupt outflow of large amounts of capital may affect a
country's financial stability, as shown in the 1997-98 Asian financial
crisis, he said.
China has gradually eased restrictions on companies retaining foreign
exchange.
From 2002, companies were allowed to retain 20 percent of their foreign
exchange revenues.
The proportion was raised to 50 percent in 2004 and to 80 percent in 2005.
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