Analysis | Reforms ahead as Beijing keeps eye on capital flows

Moves by Beijing to strengthen monitoring of the mainland’s balance of payments are as likely tied to the long-promised liberalisation of the country’s capital account as they are to a clampdown on corruption.

Rules forcing every mainland resident to declare their financial assets and liabilities overseas from January 1 will give regulators a granular view of how much capital is leaving the country and help them figure out how much more might quickly follow if curbs on cross-border capital transactions are eased.

The new rules revealed by the State Council last month come amid a year-long crackdown on corruption and a Beijing-backed bid to boost overseas investments by Chinese firms to broaden the nation’s international asset base that will dilute its direct exposure to US dollar-denominated holdings in official reserves – which are currently around US$3.7 trillion.

Experts say the twin motives for the new rules fit clearly with the government’s long term plans for economic development and reform, with analysts broadly expecting the renminbi currency to be basically convertible on the capital account some time between 2015 and 2020.

“Obviously, this is the trend, that China will loosen its capital controls over the next five to 10 years, so revised rules on monitoring BOP (balance of payments) is a must due to risk management concerns,” Raymond Yeung Yu-ting, a senior economist at ANZ Banking, told the South China Morning Post.

The balance of payments refers to monetary transactions, including goods, services and investments, between one country and other countries.

The State Administration of Foreign Exchange (SAFE) said the balance of payments under the current account showed a surplus of US$138.2 billion in the first three quarters of this year, bolstered partly by a surplus in goods trade.