The Chinese are letting their money loose on the world.  Well, loose if a twenty foot rope means loose.  Up to this date, the vast savings of Chinese citizens have been basically confined to China.  Now Chinese banks and mutual funds will, with permission and quotas, be allowed to send their Yuan across the waves to make money for them.

This 18^th, the People’s Bank of China and the State Administration of Foreign Exchange announced that banks can now apply for a license from the China Banking Regulatory Commission to invest outside of China in fixed income products and mutual funds can raise money in foreign currencies to buy foreign securities..

Now, I’ve got to be honest, I know a thing about investment.  So this post will have three links at the bottom written by people who do.  But I’ll give you a quick summary of what I gleaned from reading around the net.  The probable results of the new law are obvious in some respects.  For example, there will be a quick in surge of money to some of the more conservative investment options—to the possible tune of $10-12 billion US in 2006.  Chinese banks and funds will slowly start to get into higher risk options.  But that’s about as much as anyone is willing to say with any certainty.  One of the goals of the new rules is to let the Yuan become more fully convertible, instead of having it nailed to the American dollar.

So, of course, there are limitations.  The Chinese don’t want the Yuan’s value to move quickly one way or another.  There will be quotas on the amount of investment allowed out of China and banks will require government approval before they are allowed to start foreign investment.  But we don’t know what the quotas are.  I think the government is just adding a soft spot to the rules where they can adjust things quickly if need be.  Though letting your banks and funds invest may seem like a leap of faith, China has definitely tied a rope around them before they jump.

I know a lot of people will still complain that the Chinese are too slow to let the Yuan reach its own market value, but hey, it is another step.  But no one is quite sure just how big a step it is yet.

Promised links:

Forbes: http://www.forbes.com/business/feeds/afx/2006/04/19/afx2679295.html

Sina News: http://english.sina.com/business/1/2006/0418/73165.html

Interactive Investor: http://www.iii.co.uk/news/?type=afxnews&articleid=5614767&subject=companies&action=article