China has stepped up its encouragement of the use of private capital in overseas expansion by domestic companies by creating foreign currency financing channels, and allowing individuals to act as guarantors during fundraising.

Starting July 1, onshore entities of Chinese domestic companies will be allowed to use the foreign currency loans they acquire from domestic banks to finance offshore operations, to the State Administration of Foreign Exchange announced June 15 in a statement.

The new regulations will simplify the procedures and eliminate some approval requirements for Chinese mainland companies and their affiliates to transfer foreign currency in and out of the country for the purpose of direct investment.

"The administration is improving the foreign exchange management of overseas investment and guarantees, so as to encourage and guide healthy development of private capital investment overseas," said SAFE in the statement.For the first time Chinese individuals will be allowed to act as a co-surety to provide guarantees for loans. The move represents another incremental step by China to reduce its complex system of capital controls and allow funds to flow more freely in and out of the country, analysts said.

" The initiatives reflected the Chinese government is revving up efforts to encourage more domestic, private-sector companies to invest abroad,” said Stephen Hu, a Bank of China investment advisor. “It shows China is gradually relaxing its capital-account controls for outbound investments.”

Moody’s said in a report on Monday that the move by SAFE is credit positive for Chinese corporate issuers with overseas investments or offshore debt, particularly non-property, high-yield issuers, as it provides a new foreign-currency funding channel for these issuers, which often had limited offshore liquidity resources. However, the permission to use domestic, foreign-currency loans for cross-border, inter-company borrowing provides alternative liquidity to service these companies’ offshore debt, and will help them better match the currencies in which they borrow with the funding currencies of their overseas investments.

Related News in Chinese:
中国加大对国内企业海外扩张的支持力度

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