More reforms on the way in Shanghai FTZ, says vice-mayor
Tu Guangshao hints at further deregulation as foreign firms get nod to move capital through special bank accounts in Shanghai free-trade zone
Shanghai vice-mayor Tu Guangshao has heralded further financial liberalisation in the city's free-trade zone, fuelling speculation about future full convertibility of the yuan in the test bed for mainland economic reform.
"The financial reform is about to reach a climax amid a series of new reform measures," Tu told a government conference yesterday. "The newly established regulatory framework in the zone has laid a solid foundation for further drastic steps."
The People's Bank of China allowed companies registered in the zone and foreign institutions to open special bank accounts yesterday. Capital will be allowed to be freely converted and transferred between overseas accounts and the zone accounts, known as "offshore accounts".
However, the move falls short of full convertibility of the yuan, with the central bank saying regulators will monitor capital flows closely and suspend transfers if they spot irregularities in cross-border transactions.
Although Tu did not explicitly spell out that the policy would pave the way for a fully liberalised capital account in the zone, he sent a clear message that the long-expected deregulation was in the pipeline.
Beijing gave Shanghai the go-ahead to build a Hong Kong-style free-trade zone in September last year, promising to make the yuan fully convertible in the zone - a move designed to facilitate cross-border capital and commodity flows.
Expectations were high at the time that major financial reforms, including full yuan convertibility, would be implemented in the zone in the first half of this year.
Tu's statement highlights Shanghai's determination and desperation to deepen the reforms in the wake of an in-principle agreement from Beijing for 12 similar zones across the country.
Shanghai is striving to make the most of the zone to gain the upper hand over its rivals, including Guangdong, as they step up efforts to attract funds and talent.
A liberalised capital account could give foreign funds greater access to mainland equities and its property and manufacturing sectors.
But Shanghai would still have to allay regulators' risk-control concerns and fears of hot money inflows.
Zhang Xin, the head of the PBOC's Shanghai branch, said yesterday full convertibility of the yuan would be conducted in a step-by-step manner.
An official with the China Banking Regulatory Commission's Shanghai branch said concerns about the risks involved meant top regulators had yet to decide whether to implement such deregulation.