China relaxes over foreign investment

 
Tim Wallace
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FOREIGN investors will be able to purchase shares in China with currency held offshore, authorities announced on Friday.

The move follows data out last week showing that year on year, foreign direct investment fell for the first time in 28 months as the economy continued to slow down.

Gradual internationalisation of the renminbi is a long held goal of the government, but is being achieved in small steps like this one.

Moves to allow more cash to come into the country have long been expected, but the government has been worried at the prospect of rapid flows of money into the country.

Other fast-growing economies like Brazil, for example, experienced huge flows of hot money, pushing up the currency and boosting inflation, resulting in new capital controls being introduced.

However, such concerns may be lessened by the slowing pace of economic growth that China is experiencing currently.

External analysts have recently slashed GDP growth forecasts. The Asian Development Bank, for example, cut growth estimates for 2012 from 9.1 per cent to 8.8 per cent earlier this month.

Meanwhile, house prices fell in most Chinese cities in November, official data showed yesterday, as measures to deflate the country’s property bubble took hold.

Earlier this year some regions saw house price inflation of almost 10 per cent. Since then, the government banned second home purchases in some cities and raised interest rates, wary of an overheating economy.

The price of new homes fell in 49 of the 70 cities tracked in the month to November.

Monetary authorities are balancing inflation risks with the chance of an economic “hard landing.”