Beijing approves blueprint for capital market reform
State Council backs plans for expanding capital market and yuan's global status
The State Council approved guidelines on reform priorities this year, as the government seeks to widen and deepen the capital market - in part through the planned Shenzhen-Hong Kong Stock Connect - as well as boost the yuan's global status and improve resource allocation.
The government pledged to have an orderly easing in controls over deposit rates, reform of the initial public offering system and development of a multi-layer capital market, according to a document issued yesterday.
It vowed to launch a pilot project "at a suitable time" on domestic individual investors' overseas investments.
The policymakers are also planning an experimental run of the Shenzhen-Hong Kong Stock Connect after a similar link between Shanghai and Hong Kong.
The guidelines were drafted by the National Development and Reform Commission and are an attempt to detail the action plans for reform this year after the top leadership set the policy tone at the Central Economic Work Conference in December.
"The need to boost efficiency of economic operation has prompted an acceleration in financial reform," said Zhang Monan, a senior researcher at the state-backed think tank China Centre for International Economic Exchange.
But Zhang said fiscal reform had clearly lagged behind because it was more complicated and involved a redistribution of responsibilities and interests between the central government and local authorities.
The mainland has taken measures to ease controls on financial resources allocation, including raising the ceiling for deposit rates to float. The A-share market has rallied remarkably since late last year, despite greater volatility recently, thanks to the government's easing policies to inject more liquidity.
Christie Ju, an equity analyst with Jefferies Hong Kong, said the Shenzhen-HK Stock Connect programme would be "a solid step in the globalisation of the capital market".
The yuan reform was in line with Beijing's strong wish that the International Monetary Fund include the yuan in October as a new reserve currency in its Special Drawing Rights, a supranational currency basket consisting of the US dollar, pound sterling, yen and euro.
The State Administration of Foreign Exchange has begun adopting the IMF standard for calculating balance of payments and international investment positions, in "probably the last-minute effort to increase [the yuan's] chance to be included in the SDR basket", according to Societe Generale economist Yao Wei.
The IMF has said it was only a matter of time for the yuan's inclusion in the basket though it must first meet the "freely usable criteria".
