Jan 04, 2011 06:24 PM

China Allows Exporters to Keep Foreign Earnings Overseas

(Beijing) – China said December 31 that exporters will be allowed to keep their foreign revenues overseas from January 1, in a move to expand a trial program effective since October 1.

The new measure signals loosening controls on foreign exchange and will help slow down the growing pace of China's already massive foreign exchange reserves.

Under the new rule, it is up to qualified Chinese exporters to decide how long they park their revenues in foreign currencies in a foreign country and when to transfer the funds to China, according to the State Administration of Foreign Exchange.

In the past, exporters were required to convert their revenues in foreign currencies into Chinese yuan with commercial banks. Commercial banks in China sell the foreign currency to the central government. The People's Bank of China has been forced to increase the monetary base in order to purchase foreign currency from commercial banks, which has increased the liquidity of the yuan in China.

"The direction is clear. The authorities want less foreign exchange to come in, so they are giving exporters the right to keep it abroad," said UBS economist Wang Tao.

In late August, SAFE decided to carry out a foreign exchange pilot program in Beijing, Guangdong, Shandong and Jiangsu, effective on October 1, with a trial period of one year.

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