Things to be a little easier in China

[Zinger]

This article suggest that doing International business in China may become a little easier. Good News for AVESCO now they may get paid in cash and not rice!!!


The head of China's foreign exchange administration has announced that the mainland will gradually loosen a host of capital-account controls and, for the first time, allow foreign financial institutions to issue yuan-denominated debt paper. Guo Shuqing, the head of the State Administration of Foreign Exchange, told Xinhua that the steps were designed to improve China's capital-account management "in the near and medium term". Mr Guo said the types of capital-account transactions for which yuan could be converted to foreign currency had been expanded. "The aim is to pursue basic . . . convertibility of the yuan on the capital account," he said. The yuan is already convertible on the current account.

Foreign banks, on the other hand, are expected to leap at the chance of issuing yuan-denominated bonds in the mainland. They lack large deposit networks and have found it difficult to raise the cash they need to grow their China-based lending businesses. Persistently low interest rates add to the attractiveness of the new fund-raising mechanism.

By making it easier to convert yuan to foreign currencies and opening a channel for financial institutions to invest more overseas, Beijing ultimately hopes to help relieve upward pressure on the yuan. The publication of Mr Guo's interview yesterday precedes Premier Wen Jiabao's maiden visit to the United States, where he is likely to face intense pressure over America's US$90 billion trade deficit with China.

Goldman Sachs China economist Hong Liang said the timing was "sending a signal that it may start to adjust its fixed-pegged exchange-rate regime".

"These relaxations will step up the pace of capital-account liberalization, but it doesn't necessarily mean a wholesale opening of the capital account," Mr Coulton said, adding that the measures involved limited fund flows. Ms Hong said it was significant that an official of Mr Guo's rank had publicly admitted the shortcomings of the exchange-rate regime.

"In the past, they said the regime reflected demand and supply. But now they say the regime has some inadequacies. For example, it does not reflect the domestic supply and demand situation."