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BEIJING, June 9 (Reuters) - China's foreign exchange regulator on Tuesday announced new rules to support overseas investment by Chinese companies, which it said could translate into $30 billion in extra outflows.
The State Administration of Foreign Exchange (SAFE) said it would allow qualified Chinese companies to use their retained capital, either denominated in yuan or foreign currencies, to buy forex to fund overseas subsidiaries.
Chinese companies were already allowed to use their retained capital to lend to overseas ventures but with heavy restrictions.
Under previous rules, a loan from the parent company in China to its overseas subsidiary could be no less than $5 million, making it available to big companies only.
Under the new rules, however, any Chinese firm will be allowed to provide up to 30 percent of its equity base to its overseas subsidiaries.
"We had done a pressure test, and the maximum possible capital outflow from this new mechanism is $30 billion," Sun Lujun, a SAFE official, told a press conference.
The new rules, which take effect on August 1, will also simplify approval procedures for outbound investment.
China has ample cash on hand to support overseas investment, with $2.9 trillion in foreign financial assets, including both official forex reserves and private holdings, at the end of 2009.
China's outbound investment has been very tepid compared with inflows from foreign investors, but the pace has started to pick up, nearly doubling to $52.2 billion in 2008 from $26.5 billion in 2007.
The government's easing of outbound investment rules is only
one part of the equation, as Chinese companies have run into
obstacles on several major investment attempts. Just last week
global miner Rio Tinto