China To Open Its Financial Markets For Better Capital Flows

China is now ready to open up its financial markets for free flow of capital and investments according to central bank Deputy Governor Pan Gongsheng.

Speaking to media outlets, Pan said that China would continue with its agenda of easing access to the financial markets while retaining its oversight of foreign exchange transactions.

He highlighted that he didn’t consider the current scrutiny of foreign companies transferring out profits out to be excessive. In a statement, Pan said

China has always had these reviews, and those meeting requirements can transfer money freely. Companies can lodge a complaint with the foreign-exchange authority if they have any problems.

Pan was responding to complaints raised by foreign companies operating in China of increased delays and lengthy documentation requirements with respect to the process of sending out profits. Pan, who also heads the State Administration of Foreign Exchange (SAFE) stated that companies were free to send out their profits as dividends provided they have complied with necessary regulations.

CCTV+

The rules require companies to provide supporting documentation like tax and audit records before transferring out their profits. According to Pan, companies must also pay any pending taxes, settle losses from previous years, and establish the board of directors’ consent to profit distribution. The stipulations are part of a range of measures instituted by Chinese authorities to stem the large scale capital outflows from the country that had been occurring as a result of the dollar strengthening and a slowdown in the country’s growth.

The Governor Zhou Xiaochuan for the People’s Bank Of China which is the country’s Central Bank said in a recent interview that increased capital had flowed into China after developed economies initiated stimulus measures in the aftermath of the financial crises and capital was now exiting the country as the global economy became more stable.

Pan stated that investments by domestic companies abroad were encouraged, provided it was done in an orderly fashion. He said that central bank advice was needed to guide these companies through periods of irrational and hasty investments. In Pan’s view, some scenarios needed special regulatory attention in order to ensure their legitimacy. He included cases such as companies making investments in areas outside their main business fields and small companies having large foreign subsidiaries.

Tommy Xie, an economist for OCBC in Singapore said that the central bank’s main aim this year was to improve foreign investors’ access to the country’s bond market and keeping the yuan stable without tightening capital controls further. He said that more investors accessing the bond market could help China’s markets become more active.

Charlie Harrison

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