SHANGHAI, Apr 18 (AFP): China issued rules today that allows its banks to invest capital overseas on behalf of their clients, a move that brings the nation a small step closer to full convertibility of its currency.
The relaxation of forex controls came as Chinese President Hu Jintao was scheduled to leave for the United States where discussions with President George W Bush are expected to focus on currency and trade issues.
"The approval aims to meet domestic demand for overseas investments, and to effectively promote balanced international payments," the central bank said in a statement on its website.
"It is also meant to further open the financial markets to the outside world and is an important step in promoting the gradual convertibility of the yuan."
The US accuses China of moving far too slowly on reforms to its tightly controlled currency, and has threatened punitive tariffs if the Asian giant does not make greater efforts to loosen the unit.
Today the central bank said the measures were necessary to meet increased demand from Chinese companies for a wider choice of investment channels.
The announcement issued jointly by the People's Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE), further clarifies last week's limited reforms to the capital account.
Last Friday the central bank said qualified local banks would be allowed to pool capital from institutions and individuals and buy as yet unspecified amounts of foreign exchange for investment in fixed-income assets overseas.
Domestic fund management firms and securities companies are also permitted to invest institutions' and individuals' foreign exchange, again in yet unspecified amounts, in foreign securities, including stock markets.