China’s enormous foreign exchange reserve, while itself actively seeking investment opportunities, will also use its capital to promote Chinese enterprises "moving out" into international markets.
Deng Xianhong, Deputy Administrator of the State Administration of Foreign Exchange (SAFE), said that SAFE would assist related financial departments in setting up supportive funds for Chinese enterprises "moving out." He said that SAFE would also revise and enrich Procedures for the Administration of Foreign Exchange Involved in Investment Abroad according to experience already gained.
Such investment is vital to the development of Chinese overseas business. It is also necessary for managing risks brought by RMB exchange rate. Deng Xianhong said Chinese firms, by selling their products in international markets, could largely avoid RMB appreciation problems, tariffs and other trade barriers, effectively expand international market share and increase their own competitiveness,
Chinese firms are accelerating their overseas investment. Between 2002 and 2007, China’s overseas investment totaled $21.6 billion, and in 2007 alone, it was $10.8 billion. A rational system for capital inflow and outflow is being established.
Deng Xianhong emphasized that SAFE would create a more relaxed environment for the overseas investment of Chinese companies.
"According to the fifth five-year plan, SAFE will further support Chinese companies�overseas investing by broadening financing channels and developing effective financial instruments to avoid foreign exchange risks. To support the development of overseas companies while allowing the internal use of foreign currency funds of multinational companies, SAFE will consider loosening qualifications and scale limits for multinational companies investing abroad, and simplifying approval procedures," Deng said.
By the end of March, SAFE held about $1.68 trillion in foreign exchange reserves. It has recently decided to invest over $2.5 billion in a newly established fund from TPG Capital, an American private equity investment company, the largest amount that SAFE has promised to invest in private capital companies.
TPG’s new fund has amassed about $17 billion. Last week it agreed to acquire a 23% stake in Bradford & Bingley, UK’s biggest investor in home mortgage loans.Â
The SAFE has also bought minor equity stakes in BP, TOTAL, and three Australian banks.
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