China wants fewer curbs in free trade zones to lure foreign investment

BEIJING (REUTERS) - China hopes to suspend its laws governing foreign investment in proposed free trade zones, in a sign the world's second-biggest economy could open further to foreign competition.

The State Council, China's Cabinet, will ask senior members of the National People's Congress, or Parliament, for the power to suspend laws and regulations governing both foreign-owned companies and joint ventures between Chinese and foreign companies in free trade zones, including Shanghai, the Cabinet said on its website.

The move is aimed at "accelerating transformation of the government's role... and innovating ways of (further) opening up (to foreign investment)", according to the statement, seen on Sunday. It set no timetable and gave no further details.

Foreign direct investment in China slowed last year but reversed its decline in the first quarter of this year as confidence improved. China attracted US$38.3 billion (S$48.6 billion) in foreign direct investment in the first four months of the year, up 1.2 per cent from the same period last year.

China's financial centre, Shanghai, will test yuan convertibility and cross-border capital flows in the free trade zone pilot programme.

The country's new leaders have signalled they want to speed the process of making the yuan fully convertible over the next few years, as part of efforts to boost the currency's use in trade and support wider financial reforms.

Shanghai officials are keen to experiment with freeing up the capital account and yuan convertibility, fearing the city could be left behind as rival centres, such as Hong Kong and Taiwan, move to develop cross-border yuan financial services.

Shanghai stepped up lobbying efforts after the 2012 creation of a special trade zone in Qianhai, near the southern boomtown of Shenzhen and across from Hong Kong, where yuan convertibility is being trialled.

The Qianhai zone, administered by the central bank, the People's Bank of China, lets banks from Hong Kong offer cross-border yuan-denominated loans to mainland firms.

Other initiatives announced this year include trial programmes to smooth the way for foreign firms to move funds in and out of China, cutting the need for approvals and easing bank procedure.