Beginning August 1, Chinese companies can now use their foreign exchange funds or buy from the state reserve to fund overseas ventures; easing rules for overseas investments. According to the State Administration of Foreign Exchange (SAFE), previously only large multinational companies were allowed to use their forex funds to lend to overseas ventures. “We had done a stress test, and the maximum possible capital outflow from this new mechanism will be US$30 billion,” quoted an official. The new rules allows forex outflow to be capped at 30 percent of the parent company’s net assets while also not exceeding the subsidiary’s total investment registered with SAFE. This condition should safeguard against forex outflows having a huge impact on China’s balance of payments.
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