Update | Shanghai free-trade zone to lead on yuan reform

The central government sees Shanghai's free-trade zone, to be launched this month, as the pioneer on the mainland of wider convertibility of the yuan and freer, market-oriented interest rates.

Beijing has in principle agreed to let the zone, the mainland's first, take the lead in its long-awaited reform of foreign exchange and interest rates, an internal government document about the zone's launch shows.

It also highlighted the importance of keeping potential financial risks under control.

"On the condition risks can be controlled, [firms] can undertake convertibility of the yuan on the capital account on a first-to-do and first-to-try basis within the zone," said the Chinese-language document, obtained by the South China Morning Post yesterday.

The yuan is already convertible for trade but Beijing still imposes restrictions on its convertibility on the capital account, mainly because of concerns that excessive money inflows and outflows could threaten the growth of the economy.

The document did not say whether the government would allow full convertibility of the yuan on the capital account. It remained cautious about the potential risks of greater convertibility, even within the zone.