Personal offshore investment trial not a big splash

08:13, January 14, 2011      

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A Chinese city's experiment in allowing individuals to invest abroad, the first in the country, will have limited impact so long as the prospect of capital returns in the domestic market remains high and the scheme is not extended nationwide, analysts say.

The city of Wenzhou, in the eastern Zhejiang Province, announced this week that residents will be allowed to invest overseas as individuals. An adult Wenzhou resident is permitted to buy no more than 200 million U.S. dollars worth of foreign exchange a year under the scheme.

Wenzhou, with 8 million residents and more than 30,000 yuan (4,545 U.S. dollars) in per capita gross domestic product in 2009, has a reputation for cut-throat entrepreneurs and private investors.

Wenzhou real estate speculators were said to be behind home price surges in Chinese cities over recent years. They also invested abroad, but only after setting up offshore companies as legitimate channels.

"Wenzhou natives are more keen on drawing their funds back from abroad as the domestic market promises more opportunities and profit returns," said Yang Liuyong, a professor of economics with Zhejiang University.

Yang said the prospect of returns was the main factor deciding the flow of private capital and the scheme might be more symbolic than practical.

Zhang Handong, a researcher with the provincial international trade research center, said, "Many Wenzhou natives who want to invest overseas are already doing so, channeling money through offshore firms set up by family members and friends."

Officials with the municipal foreign economic and trade cooperation bureau said the scheme was aimed at accounting for funds circulating in unauthorized channels.

"It will be easier for the government to monitor the funds in the private sector," said Su Xiangqing, chief of the bureau.

Su said the scheme would cut the time for investors to get approval for regulatory authority from three to six months to about one month.

Though the scheme was considered a move towards capital liberalization to ease a build-up of cash in the economy, analysts said it would only have a substantial impact if adopted nationwide.

China's foreign exchange reserves, the world's largest, rose to a record 2.85 trillion U.S. dollars in December. Yuan-denominated lending overshot the government target to hit 7.95 trillion yuan (1.2 trillion U.S. dollars) at the end of the year, according to the People's Bank of China, the central bank.


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