Updated: 2005-08-18 10:25
China will allow more banks, including foreign bank branches, to offer guarantees for overseas investment by Chinese companies as more corporations seek expansion abroad in line with the country's economic development.

As of Sept. 1, all banks based in China which have licenses to conduct foreign exchange business would be able to provide guarantees for foreign investment by overseas units of Chinese companies, the country's foreign exchange regulator said.

All Chinese firms who have overseas units can apply for such guarantees from banks on the mainland, the State Administration of Foreign Exchange (SAFE) said in the regulations published on its Web site late Tuesday.

Currently, such guarantees can only be offered by a few major banks such as the Bank of China, the country's top foreign exchange bank, and the Industrial and Commercial Bank of China, the largest lender.

And only overseas subsidiaries of key Chinese companies, such as Baoshan Iron and Steel Co. Ltd., can apply for such guarantees.

"Along with a rapid development of our country's economy, more and more Chinese companies have taken part in competition on global markets," SAFE said in a separate statement.

"Thus SAFE adjusted its policy on guarantees for overseas investment so as to support domestic companies to walk out of the gate of our country, explore overseas markets and participate in international competition."

There has been a growing trend for mainland companies to look abroad for expansion, including a failed US$18.5 billion attempt over past weeks by CNOOC Ltd. for U.S. oil and gas firm Unocal Corp.

Last year, Chinese firms made overseas acquisitions worth about US$3.8 billion, compared with less than US$2.2 billion in 2003, according to financial data provider Dealogic. At least 21 deals worth about US$2.1 billion have been announced so far this year.

Overseas buys included a US$1.25 billion purchase in 2004 by top Chinese computer maker Lenovo Group Ltd. for the personal computer business of U.S. giant IBM, making the Chinese firm the world's third-largest maker of PCs.

The foreign exchange regulator will also from September give annual quotas for banks to offer guarantees for domestic corporations' overseas investments, instead of requiring applications for each individual project.

A bank's total guarantees for overseas and domestic investment plus its foreign exchange debt must not exceed 20 times its own foreign exchange capital, according to the rules.