Beijing is quietly pushing back its loose timetable to make the yuan freely convertible, policy insiders say, as the authorities fear removing capital controls too soon could unleash damaging speculative flows that will make it harder to reshape the economy.
There has never been a hard target date for a freely traded yuan, although the central bank had outlined a goal of making it "basically convertible" by next year. That rhetoric has been toned down recently, and now analysts are looking to 2020, a deadline implied by the government's reform agenda set out in November last year.
Heading off a sharp slowdown in growth and domestic reforms - such as fixing the fiscal system to rein in debt, overhauling banks and state conglomerates - will be done first, according to economists at top government think tanks and policy advisers.
"Opening up the capital account will be the last of the reforms. We need to improve domestic financial markets and legal systems first," said a former central bank researcher who now works for the government. "That was the reason why other emerging markets [which removed capital controls prematurely] were hit by speculators."
While the yuan is already convertible under the mainland's current account - the broadest measure of trade in goods and services - the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing.
Nearly 20 per cent of the mainland's trade is settled in yuan, compared with less than 1 per cent in 2009, when internationalisation was seen as a way for companies to reduce currency risks and also to challenge the US dollar's role as the key reserve currency.
As the yuan is increasingly used in trade and investment, as well as in offshore yuan trading hubs, investors have sought to skirt capital controls by exploiting various loopholes - some of which could remain until the currency is fully liberalised.
The government keeps a tight grip on speculative flows, but under the yuan internationalisation scheme, firms can move their funds across the border through trade settlements.
One method is to borrow funds cheaply overseas and move them into the mainland to profit from higher domestic interest rates and, at least until earlier this year, a view the yuan would steadily rise. The funds are later repatriated.
These arbitrage trades intensified early last year as some firms falsified export invoices to funnel cash, mainly from Hong Kong, into the mainland, inflating export figures and triggering an official crackdown in June.
"The full opening of the capital account is the most sensitive and risk-prone reform among all reforms," said Yu Yongding, an influential economist at the Chinese Academy of Social Sciences, who thinks the timetable for convertibility has been quietly pushed back.
"Once China abolishes capital controls, China's financial system will be fully exposed to the powerful gunfire of international speculative capital," Yu, a former central bank adviser, wrote in last month's edition of Studies of International Finance.