China's Forex Rules Begin to Loosen Capital Controls

The impact of membership in the World Trade Organization is already being seen in legislative changes in China. The People's Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) have issued several notices recently easing stringent foreign exchange (forex) controls in some areas. Although the changes are largely symbolic at this stage, they point the way forward in this crucial area impacting business and foreign investment.

PBOC and SAFE Take a First Step in Relaxing Forex Controls

The purpose of PBOC and SAFE in relaxing foreign exchange controls is well summarized in the preamble of one of SAFE's notices of November 12 that declares the actions as "adjusting to the new environment of China's entry into WTO, encouraging and supporting export, enhancing the international competitiveness of Chinese enterprises, and further perfecting the forex administration of current account items". Although these first-step actions are small and don't touch the core of the present system, they are nonetheless steps in the right direction.