China close to its goal of full yuan convertibility on its capital account
Pan Gongsheng,deputy head of the central bank, says move to offer more flexibility for Chinese investment abroad is 'not far away'
China is close to its goal of allowing the yuan to be exchanged for foreign currency without any limits on the amount - a move that will grant greater flexibility to Chinese investment overseas, the deputy head of the central bank says.
"We are not too far away from the yuan capital account full convertibility," said Pan Gongsheng, vice-governor of the People's Bank of China.
The latest step in the opening of the capital account - which measures inflow and outflow of capital and covers investments such as stocks, bonds and properties - will be the launch of the new qualified domestic institutional investor programme, or QDII2.
"The QDII2 will remove the block on individuals investing overseas," Pan told a wealth forum hosted by the local government in Qingdao , Shandong province yesterday.
The QDII2, which will allow Chinese individuals to directly invest overseas, is the second iteration of the QDII programme, which is restricted to financial institutions under a quota system.
The Shanghai-Hong Kong Stock Connect and a similar trading scheme to link the Hong Kong and Shenzhen stock exchanges, now in the pipeline, and the established Qualified Foreign Institutional Investors programme were steps to opening up the yuan capital account, Pan said.
These programmes would help internationalise the renminbi and encourage cross-border investment, he added.
The increasing use of the yuan abroad and opening up of the capital account would help China's wealth management businesses seek more overseas investment opportunities, he said.
"The wealth management market in China is huge. Chinese investors want to invest abroad to diversify their risk."
A healthy wealth management market would need better risk management and more investment tools, he said.
Market forces should play a greater role in the market so regulators could better tolerate defaults, Pan said.
"If there is no systematic risk, regulators may allow defaults to happen as these are driven by market forces. Such experience can enhance market discipline," Pan said. However, a strict regulation should be in place to crack down on fraud, Pan added.
Speaking at the same forum, Jiang Jianqing, the chairman of Industrial and Commercial Bank of China, said China's wealth management market was worth about 40 trillion yuan (HK$50 trillion) at the end of the first quarter.
The fundraising needs of projects under public-private partnerships, the Asia Infrastructure Investment Bank and the "One Belt, One Road" initiatives would offer more opportunities for the wealth management market, Jiang said.
Song Min, director of the finance department at Peking University's School of Economics, doubted that the yuan capital account would be fully convertible by the end of this year - the target set by the central bank.
"As the opening up of the capital account involves so many aspects, it has to be done gradually," he said.
The capital account liberalisation should be facilitated by the central government under a top-down design to achieve openness, Song added.