China takes big step towards fully convertible yuan

In a move towards internationalising the yuan, the State Council said yesterday it will unveil an operational plan this year to make the currency fully convertible under capital accounts.

The plan is likely to include a clear-cut time frame.

The cabinet also said it would establish a comprehensive system for individuals' outbound investments, indicating that Beijing would make a renewed effort to relaunch the "through train" scheme allowing mainlanders to directly buy Hong Kong stocks - a plan that was scrapped in 2007. While the yuan is already convertible under the current account, covering trade, the capital account, which covers portfolio investment and borrowing, is closely controlled.

The announcement, which followed a meeting chaired by Premier Li Keqiang , indicated the leadership may already have drafted a time frame for a freer capital flow. It had been speculated earlier that full convertibility would come by 2015.

The State Council said the decisions at the meeting were in compliance with directives from the Communist Party's Central Economic Working Conference in December chaired by President Xi Jinping .

"The statement shows the leadership has attached great importance to the convertibility issue and the operational plan will give the all-clear for liberalisation," said Li Huiyong, chief economist with Shenyin Wanguo Securities. "Global and domestic economic conditions have pushed the leaders to accelerate the pace for reforms."