Chinas capital account to be more open in next five years

A senior central bank official said on Sunday that Chinas capital account will be more open during the 12th Five-Year Plan, the national development strategy for 2011- 2015, according to a report by Shanghai Securities News on Monday.

Yi Gang, deputy governor of the Peoples Bank of China and head of the State Administration of Foreign Exchange, noted that there is strong foundation for a more open capital account and the internationalization of the RMB thanks to Chinas growing international competitiveness, the scale of its exports, its ample foreign exchange reserves and the trial projects for yuan-denominated cross-border trade settlement.

However, he also pointed out that there is still not a timetable for the free convertibility of the RMB under the capital account.

He believes that the current exchange rate of the yuan is appropriate and the market-based managed floating exchange rate regime tied to a basket of foreign currencies is the best choice for Chinas economy.

China Securities Journal citied Yis data and showed the central bank had to spend 20 trillion yuan to buy the countrys 2.85 trillion U.S. dollars of foreign exchange reserves. Under the existing foreign exchange settlement system, individuals and enterprises sell their foreign currency to banks for RMB.

Yi stated that Chinese enterprises and citizens would be allowed to buy foreign currency for overseas investment purposes in the future when the foreign exchange reform moves ahead. In that way, the 20 trillion yuan will flow back to the central bank, thus reducing the liquidity on the market.

A trial project of overseas investments by individuals in Wenzhou in Zhejiang Province was suspended last month. Yi explained that it was due to procedure problems, adding that the progress on the national economy and financial, legal framework would facilitate the openness of the capital account.

Chinas overseas financial assets exceed 3 trillion U.S. dollars, with a majority held by the government, Yi! said. B ut in Japan, for example, only 1 trillion U.S. dollars of Japans overseas financial assets are the countrys foreign exchange reserves while the remaining 4 trillion U.S. dollars is held by enterprises and individuals.- Peoples Daily


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