China's foreign exchange regulator has raised the upper limit on forex holdings of domestic companies under current accounts in a further step towards liberalizing its currency policy restrictions.

The move was announced on Tuesday by the State Administration of Foreign Exchange (SAFE).

It shows once again how China is gradually moving towards an open-market economy, and follows last month's scrapping of a decade-old peg of the renminbi to the US dollar.

The latest forex policy adjustment, the eighth of its kind since 1994, will allow domestic firms to keep more of their income from foreign operations, giving such enterprises more freedom to manage forex settlement costs.

The move is also aimed at helping companies "to strengthen their international competitiveness and help improve the yuan exchange rate mechanism," said a statement on the SAFE website.

The Chinese currency regulator said local companies and institutions will be allowed to keep as much as 80 percent of their forex holdings in current accounts.

In March 2004, the upper limit was raised to 50 percent.

The measure may also reduce the amount that firms convert into yuan, relieving demand for the local currency and therefore reducing the upward pressure for the renminbi.

China has been doing a lot of work to try to allow more freedom in its forex policies and improve its forex mechanism. But the government has said the steps must be small and gradual.

(China Daily August 4, 2005)