THE establishment of holding companies could help foreign investment enterprises (FIEs) balance their foreign currency needs, a prerequisite for passing the annual check imposed by China's State Administration of Exchange Control (SAEC).
According to regulations announced by the Ministry of Foreign Trade and Economic Co-operation to govern formation of holding companies by overseas investors, the underlying companies can balance foreign exchange needs and expenses among themselves.
However, the regulations did not specify whether the companies could conduct direct foreign currency swaps among themselves or had to go through swap centres, said Deloitte Touche Tohmatsu senior manager Dominique Lien.
As the regulations said swaps should be done under supervision and with the approval of the SAEC, Mr Lien said they opened the way to further clarification from the administration.
To solve the problem of balancing foreign exchange, he advised foreign investment companies to increase exports, reduce average use of foreign currency and increase production domestically.
Under the prevailing system, domestic enterprises are required to sell all their foreign exchange earnings to designated foreign exchange banks through the interbank market.