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

Shanghai is ahead of its counterparts in other parts of the country 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 the stipulation of being repaid later.

What's more, 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 can only manage their forex separately. 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 Chinese headquarters, which will decrease their financing costs and facilitate companies to better 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 selected multinationals. The criteria includes 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 striving to attract multinationals to locate their regional headquarters in the city.

Moreover, SAFE's Shanghai bureau is taking measures to regulate foreign companies and Chinese companies on the same basis.

"This complies with China's commitment to the World Trade Organization that foreign companies will be given domestic treatment in 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 attaches more importance to forex outflow than inflow.

"Similar status will be given to either direction of the fund flow", Fang said.

He also said the administration procedure 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 will also give support to these deals.

(China Daily March 3, 2004)