Smooth move to loosen foreign capital rules

Tom McGregor

There's much ado about China's economic slowdown this year. For nearly three decades, the country has enjoyed GDP annual growth rates. But the country has suffered from a drop in exports to the US and Europe in recent months.

Yet, China's economy remains strong with high employment and a bright retail sales outlook. The country has upgraded its services sector, and the financial services field appears poised for a major boom, since disposable incomes are rising.

China's tourism industry has attracted millions of visitors from all over the world. Many global businesses are pouring investments into the country, ranking it number one worldwide with the largest flow of Foreign Direct Investments in October. Accordingly, it's the right time to ease restrictions on foreign capital flows.

"China will clear the way for foreign investors' capital to flow in and out of the country more easily by waiving and simplifying regulations, the State Administration of Foreign Exchange, or SAFE, said on Wednesday," according to AsiaOne news.

It added, "in a statement published on its Website, SAFE said that there's no evidence to suggest that the nation is seeing pressure from capital inflows, although the yuan has strengthened in recent weeks, mainly driven by increasing optimism about China's economic outlook."

The rules changes points to a dramatic shift of government policies. Historically, the Chinese government expressed concerns that a flood of foreign investments could spark a rapid rise of the RMB's value, which may harm domestic manufacturing export companies.

However, labor and production costs have been increasing in the country. Factories that rely on producing goods by hiring low-skilled and low-waged workers are struggling financially. Hence, many companies have relocated their factories to Western China or Southeast Asia.

In the meantime, China's economy is becoming more developed and its cities such as Beijing, Shanghai and Shenzhen can boast of living standards that are comparable to world-class cities located in North America and Europe.

In actuality, a stronger yuan can transform China from a manufacturing-based economy to a vibrant middle class society. So if foreigners could enjoy greater ease to bring their cash into the country then that would mean more financial opportunities for the entire nation.