Capital Account Convertibility and China’s Drive to Open its Financial Sector

来源: CHINA FOREX 2019 Issue 4
Important areas include the primary share market as well as markets ...

China will push ahead with its efforts to open up the financial sector in the near term and allow greater convertibility of the currency under the capital account. Important areas where convertibility needs to be expanded include the primary share market as well as markets for derivatives and foreign exchange. These reform efforts will be made under a framework of stepped up macroprudential regulation and strengthened risk oversight.

  China has been making steady gains in opening its financial sectorparticularly in the current period of international asset reallocation.  Recentlythere have been significant adjustments in global liquidity amid Sino-US trade friction and US financial market volatility. In order to hedge against these factorssome global asset managers have been turning to markets which have a low correlation with those in the US and Europe. These markets need to meet a threshold of minimum requirements; they must have free capital flowssimilar trading practices to developed markets and a more reliably regulated trading environment. China’s renminbi asset market is suitable in most aspects with one large exception - restrictions on access for foreign investors.

  As China upgrades its economy it has also seen a restructuring of its balance of payments. It is estimated that the trade surplus will gradually decrease while international capital inflows will play a greater role in maintaining equilibrium in the payments balance. Against this backgrounda new trend is emerging in opening up the capital account. In Julyfor examplethe Chinese government announced the Relevant Measures for Further Opening Up the Financial Sector. In September the foreign exchange regulator announced it would abolish investment quota restrictions for the Qualified Foreign Institutional Investors (QFII) and the Renminbi Qualified Foreign Institutional Investors (RQFII) programs. This article examines these measures and sheds light on what policies might be implemented in the future.         

Past Progress

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