Select multinationals operating in China will benefit from new measures to facilitate forex fund flows, both between subsidiaries in the country and with parent companies overseas.

The foreign exchange (forex) administration is taking steps to facilitate fund flows within multinationals in China and with their parent companies abroad, according to Fang Shangpu, director of the State Administration of Foreign Exchange (SAFE) Shanghai Bureau.

Shanghai is taking the lead nationwide in allowing multinationals to transfer their after-tax profits to their parent companies abroad, he said.

This should be conducted in the form of loans and done through banks, with later repayment stipulated.

Foreign companies with multiple subsidiaries in China will also be able to manage their forex assets collectively in their Chinese headquarters.

Under current regulations, they must manage their forex individually. If one subsidiary is short of funds, it must go to a bank or intermediary instead of turning to its headquarters or other subsidiaries.

The new initiative allows companies to make use of their funds around the country under the authority of a Chinese headquarters. This will decrease their financing costs and help companies better to use and allocate their capital.

"It will improve the credit structure and fortify the fund efficiency of these companies," Fang said.

But the new initiative only applies to select multinationals. The criteria include records of forex deals, financial structure and the credit and scale of parent companies, according to Fang.

The new policies also aim to create a better investment environment in Shanghai, which is encouraging multinationals to locate their regional headquarters in the city.

Moreover, SAFE's Shanghai bureau is implementing measures to apply equivalent regulations to both foreign and Chinese companies.

"This complies with China's commitment to the World Trade Organization that foreign companies will be given domestic treatment by 2006," he said.

"However, given the current situation, we are still unable to manage the foreign currency administration on foreign and Chinese companies in exactly the same manner."

SAFE pledges to change its decades-old policy, which is concerned primarily with forex outflow.

"Similar status will be given to both directions of the fund flow", Fang said.

He also said the administration of the forex loan principals of foreign banks will be improved this year.

SAFE's Shanghai bureau will assist the city's state assets reform, which will involve foreign capital.

Some Chinese enterprises, including state-owned ones, are also looking at overseas companies for acquisition. Fang said his bureau would support these deals.

(China Daily March 3, 2004)