The mainland's central bank has announced detailed reform guidelines to support the Shanghai Free Trade Zone, but foreign investors are still questioning just how free the zone will be.
In a six-page report that included 30 detailed instructions, the People's Bank of China said yesterday it would allow residents of the zone - seen as a test bed for liberalising the financial sector - to set up "resident free trade accounts" in both domestic and foreign currencies, and would allow yuan to be fully convertible under those accounts "when the time is ripe".
The 29 sq km zone, the first of its kind on the mainland, was set up two months ago and the guidelines suggest it will offer benefits that Beijing has been reluctant to offer other pilot areas.
For example, "qualified" individual investors will be able to make various foreign investments, including trading overseas securities, a landmark measure that the eastern city of Wenzhou has been lobbying over for years without gaining final approval from Beijing due to capital flight concerns.
Firms within the zone will also be able to borrow money from overseas lenders and use the proceeds outside the zone, a big relaxation compared with Shenzhen's Qianhai , which says that non-financial firms that borrow offshore yuan must use the proceeds in that zone.
However, the blueprint is still seen by economists as "conservative" because it does not give a clear time frame for the yuan's full convertibility and avoided mention of widely anticipated rules on deposit rate relaxation.
"The guideline is milder than what the market has expected," said Liao Qun, chief economist and head of research at China CITIC Bank International. "It seems a conservative view is dominant in the decision-making body and they don't want to try bold financial reforms."