China would loosen its controls on overseas investment procedures and foreign exchange management of domestic companies to boost outbound investment, China's foreign exchange regulator said on Wednesday.

The State Administration of Foreign Exchange (SAFE) released on Wednesday a new regulation, which would simplify the examination and approval procedures for domestic companies with overseas investment plans.

The regulation was aimed at offering more freedom to domestic companies on their forex use, investment and financing and to encourage them to go out of China, SAFE said in its website.

Domestic companies would be allowed to register the source of their foreign exchange financing after their investment overseas instead of obtaining approval beforehand, according to the regulation.

The regulation would also allow domestic enterprises to finance overseas investment with domestic foreign exchange loans, purchases of foreign exchange with yuan, their own foreign currency funds and profits gained abroad.

Domestic companies would be able to transfer funds abroad before their overseas projects were established, after gaining approval from SAFE. The ceiling rate was 15 percent of the total project investment.

The SAFE would also improve supervision over overseas investment and step up supervision and management over the foreign exchange used in China's direct investment overseas.

The draft of the regulation had been posted on the SAFE website to solicit public opinion from May to June and the regulation will take effect on August 1, 2009.

Successful overseas investment could help domestic companies to expand their markets, providing solutions to overcapacity and weak internal demand, said Zhang Qizuo, vice president of the Sichuan-based Chengdu University.

The regulation would increase outbound investment and encourage more foreign exchange uses, so as to relieve pressure brought by China's rapid expansion of forex reserves, said Liu.

China's foreign exchange reserves hit a record $2.13 trillion at the end of June, the People's Bank of China said on its website on Wednesday.