BEIJING - China said Friday it will sharply increase the amount of foreign currency that companies and individuals can take abroad, which could reduce exchange-rate tensions with Washington ahead of a U.S. visit by President Hu Jintao.
Individuals will be allowed to take up to $20,000 a year out of China, the official Xinhua News Agency and newspapers said, citing the government currency regulator. They didn't give any details of new limits for companies.
The decision to let foreign currency flow out of China could in coming months reduce pressure on the government-controlled exchange rate of its own currency, the yuan. The move is also the latest incremental step toward making the yuan a freely convertible currency.
The government has kept the yuan virtually tied to the U.S. dollar for most of the past decade. The United States and other trading partners say that the rate is too low and gives Chinese exporters an unfair price advantage.
Separately, state media also reported Friday that the government will start letting Chinese insurance firms convert their yuan reserves into foreign currency to invest abroad.
The moves come before Hu leaves next week for Washington. U.S. President George W. Bush said Thursday he hopes the visit includes talks on the currency dispute and China's soaring trade surplus with the United States.
The new changes mean that foreign currency will start flowing out of China as individuals buy foreign stocks and other assets for the first time and companies are freed up to make more investments, said Stephen Green, senior economist in Shanghai for Standard Chartered Bank.
But in the short run, there will be "very little impact for the exchange rate," he said.
"This thing will take time to set up," Green said. And he said companies "don't know whether the quotas are going to be small or a few billion dollars."
But over time, "these rules will mean that foreign exchange reserve accumulation will slow down," reducing pressure to raise the exchange rate, Green said.
Until now, China has required companies to sell the government most foreign currency earned abroad. Companies need government approval to invest abroad, and travelers could take only a small amount of foreign currency out of the country.
Currency controls have forced China's government to pile up huge foreign exchange reserves to control the export-fueled flood of money into the country and reduce inflationary pressure.
A state newspaper reported last month that China holds $853.7 billion in foreign currency reserves, which would be the world's biggest. The government hasn't confirmed that figure.
China dropped the yuan's direct link to the U.S. dollar in July and switched to a more flexible exchange-rate based on a group of foreign currencies. But Beijing has let the yuan rise by only about 1 percent against the dollar since a one-off about 2 percent revaluation in July.
Chinese leaders say they plan to let the yuan trade freely on world markets eventually. But they say doing so immediately would damage the country's fragile banks and cause financial turmoil.
The yuan fell by 0.16 percent against the dollar Thursday on Chinese markets in a possible reflection of the new policy. State media said it was the biggest one-day decline since 1996.
On Friday, news reports quoted China's top insurance regulator, Wu Dingfu, as saying his agency is launching a pilot project to expand areas where insurers are allowed to invest abroad.
Chinese insurance companies already can invest foreign currency holdings in the New York, London and Hong Kong stock exchanges.
Under the new policy, insurers will be allowed to apply for permission to convert yuan into foreign currency to invest abroad in an effort to improve returns on their reserves, Xinhua quoted Wu as saying.
Chinese insurers had about 1.6 trillion yuan ($200 billion) in combined assets by the end of February, Xinhua said, citing government figures.
Individuals will be allowed to take up to $20,000 a year out of China, the official Xinhua News Agency and newspapers said, citing the government currency regulator. They didn't give any details of new limits for companies.
The decision to let foreign currency flow out of China could in coming months reduce pressure on the government-controlled exchange rate of its own currency, the yuan. The move is also the latest incremental step toward making the yuan a freely convertible currency.
The government has kept the yuan virtually tied to the U.S. dollar for most of the past decade. The United States and other trading partners say that the rate is too low and gives Chinese exporters an unfair price advantage.
Separately, state media also reported Friday that the government will start letting Chinese insurance firms convert their yuan reserves into foreign currency to invest abroad.
The moves come before Hu leaves next week for Washington. U.S. President George W. Bush said Thursday he hopes the visit includes talks on the currency dispute and China's soaring trade surplus with the United States.
The new changes mean that foreign currency will start flowing out of China as individuals buy foreign stocks and other assets for the first time and companies are freed up to make more investments, said Stephen Green, senior economist in Shanghai for Standard Chartered Bank.
But in the short run, there will be "very little impact for the exchange rate," he said.
"This thing will take time to set up," Green said. And he said companies "don't know whether the quotas are going to be small or a few billion dollars."
But over time, "these rules will mean that foreign exchange reserve accumulation will slow down," reducing pressure to raise the exchange rate, Green said.
Until now, China has required companies to sell the government most foreign currency earned abroad. Companies need government approval to invest abroad, and travelers could take only a small amount of foreign currency out of the country.
Currency controls have forced China's government to pile up huge foreign exchange reserves to control the export-fueled flood of money into the country and reduce inflationary pressure.
A state newspaper reported last month that China holds $853.7 billion in foreign currency reserves, which would be the world's biggest. The government hasn't confirmed that figure.
China dropped the yuan's direct link to the U.S. dollar in July and switched to a more flexible exchange-rate based on a group of foreign currencies. But Beijing has let the yuan rise by only about 1 percent against the dollar since a one-off about 2 percent revaluation in July.
Chinese leaders say they plan to let the yuan trade freely on world markets eventually. But they say doing so immediately would damage the country's fragile banks and cause financial turmoil.
The yuan fell by 0.16 percent against the dollar Thursday on Chinese markets in a possible reflection of the new policy. State media said it was the biggest one-day decline since 1996.
On Friday, news reports quoted China's top insurance regulator, Wu Dingfu, as saying his agency is launching a pilot project to expand areas where insurers are allowed to invest abroad.
Chinese insurance companies already can invest foreign currency holdings in the New York, London and Hong Kong stock exchanges.
Under the new policy, insurers will be allowed to apply for permission to convert yuan into foreign currency to invest abroad in an effort to improve returns on their reserves, Xinhua quoted Wu as saying.
Chinese insurers had about 1.6 trillion yuan ($200 billion) in combined assets by the end of February, Xinhua said, citing government figures.