NewPBOC announces full yuan convertibility for Guangdong, Tianjin and Fujian, but with conditions attached
PBOC announces yuan will be freely convertible in three free-trade zones with an annual US$10m cap, but analysts criticise the move as not going far enough
The People’s Bank of China announced Friday that the yuan would be freely convertible for corporations registered in three Chinese free-trade zones in Guangdong, Tianjin and Fujian - albeit with conditions attached that have some analysts criticising the move as not going far enough.
The key change comes at a time when the yuan has touched four-year lows. The onshore yuan ended down 175 basis points on Friday, or 6.4553 against the dollar, while the offshore yuan touched 6.5322.
The central bank attached two key qualifications for the opening: corporations should not be engaged in certain sensitive industries on a government “negative list”, and the convertibility will be subject to an annual limit of US$10 million.
“[The announcement] goes against what the central bank is doing at the moment. They have suspended RQDII and QDIE, and are conducting investigations into how QDII and QFII quotas are used,” said Theodore Shou, international chief investment officer at Skybound Capital. “It has become extremely difficult for anyone to take money aboard, whether it be mainland banks, domestic fund houses or personal investors. It’s just a gesture to show they are not taking a hard line against yuan liberalisation measures.”
RQDII, QDII, and QDIE are variations of state-regulated programmes that allow Chinese investors to invest in foreign securities under quotas, while QFII is a state-run programme which governs onshore foreign institutional investment.
A foreign exchange strategist at a leading investment bank said: “It seems to me [PBOC] is looking to promote inflows. I don’t think it’s a big bang thing in terms of new measures. They are happy to introduce programmes that promote in-bound capital as they have shut down anything that leads to outflows.”
The landmark announcement has been 15 years coming as China’s leadership first signalled its willingness to eventually liberalise the capital account upon becoming a member of the World Trade Organisation in 2001. The commitment was reiterated when the former Chinese president Hu Jintao came into power.