China's foreign exchange authorities are expected to lift the ceiling for businesses to hold foreign exchange, according to a senior official with the State Administration of Foreign Exchange (SAFE).

"We are considering granting firms greater autonomy over their forex earnings by allowing them to reserve more forex on their forex accounts. The policy is now under discussion," said the official, who wished to remain anonymous.

Under the current regulations, all Chinese firms authorized to foreign-related operations or with current account forex earnings, as well as all foreign-funded companies, are entitled to open forex accounts with a ceiling equivalent to 20 percent of their current account forex earnings in the previous year.

"Judging from the current situation, the 20 percent ceiling is relatively low," she said.

"As the economic exchanges between Chinese and foreign enterprises are accelerating, trading firms have called for remaining more forex on their accounts. To cater for this need, we are going to enhance the ceiling," she said.

However, there is no telling to what extent the ceiling is to be raised.

The official added that the SAFE would also simplify the transaction procedures over the forex accounts.

Meanwhile, the administration is set to allow Chinese citizens to carry more forex on their business trips to other countries and regions.

"The new policy is expected to be made this year," she said.

The moves reflect China's improved confidence in the country's growing forex reserves, analysts pointed out.

"We now have confidence in foreign reserves, which have been growing rapidly under both the current account and capital account," said San Feng, senior researcher with the State Information Center.

China's forex reserves have been growing fast in recent years largely due to strong export increases. The number, after deducting the capital injection in the two State-owned banks, stood at US$403.3 billion at the end of last year, up US$116.8 billion from one year earlier, the heftiest annual increase.

San said the moves may slow down the growth in China's foreign reserves this year, but is unlikely to significantly affect the existing amount.

Trading companies hailed the moves, saying they can enjoy greater autonomy on forex activities.

"We are happy to be able to hold more forex. It is more convenient for us to conduct overseas-related businesses," said a manager from a Liaoning-based trading company.

Some analysts also believe the deregulation may give a push for Chinese enterprises to invest overseas.

But San said the policies, although bringing convenience for enterprises to do business on international markets will not usher in a going-overseas spree.

"Going-overseas is not merely a matter of forex policy loosening," he said.

Foreign trade analysts believed the relaxed control on companies' forex use are conducive to addressing China's trade imbalance.

Li Yushi, vice-president of the Chinese Academy of Foreign Trade and Economic Cooperation, said forex reserves are also not critical players as China currently has more than enough in its coffers.

Li said many companies are thirsty to import more equipment and technology to feed future development, but limited by current regulations on the use of foreign currency reserves.

In fact, Li noted the government has made steps to change from an export-dominated foreign trade and encourage more imports.

"More lenient relax of foreign currency reserve usage is inevitable in the future," Li said.

China's imports rose 39.9 percent to US$412.84 billion last year, which help shrank the trade surplus by 16 percent to US$25.5 billion.

However, an official from the People's Bank of China, the central bank, said the authorities still wait and see among calls for spending more reserves.

The official from the research bureau of the bank, who declined to be named, said the authorities are not well-versed in handling such a big reserve and caring for some unexpected elements.

He elaborated that the high growth rate of exports, a major contributor to reserves, is not believed to last long.

China's exports jumped by 34.6 percent last year and 22.3 percent in 2002.

The import demand for crude oil and grain, which rose in recent years, needs a large amount of foreign currency reserves, he added.

Part of the reserve is also prepared for the risk of foreign hot money, which will flow out at anytime, the official said.

"So we will need time for judgment,'' the official said.

(China Daily January 14, 2004)