Plan in place to foster international yuan use
BEIJING: China’s foreign exchange regulator said there are plans to free up inbound and outbound cross-border capital flows in the mid to long term, and to build a capital management foundation for personal investment in foreign markets, according to a senior official.
State Administration of Foreign Exchange (SAFE) deputy director Zheng Wei said twoway free floating of cross-border capital should prevent violation of national security rules and limit high-risk trading. It should comply with requirements against money laundering, terrorist financing and tax evasion, she said at the 2020 China Financial Forum.
“We will also establish a system to manage personal cross-border capital transactions. This will satisfy reasonable requirements on individuals’ outbound investments and their use of foreign exchanges,” Zheng said. She was outlining SAFE’S key tasks ahead in keeping with China’s 14th Five-year Plan (2021-25).
During that period, China will cancel or ease limits on cross-border investment and financing, expand foreign debt registration pilot programmes and launch a unified capital pool for multinational companies to use yuan and foreign currencies for investment, she said.
Experts say that will be a significant move toward fulfilling Chinese authorities’ plan to gradually ease control on cross-border capital investment, which is the foundation of achieving a free-floating, market-oriented exchange rate for yuan.
Specifically, China would launch a policy framework for cross-border investment of private equity funds, using a negative list to manage the funds’ overseas financing, Zheng said.
Meanwhile, the regulator will regularly issue quotas to domestic investors to encourage their purchases of financial instruments in foreign markets, under the Qualified Domestic Institutional Investor procedure, as well as launch pilot programmes for cross-border wealth management products.
Policymakers and advisers have proposed adopting “high-level opening to the outside world” involving trade and investment liberalisation for the next five years. The view is that opening the financial system to overseas firms will allow greater competition, which in turn would promote more efficient distribution of foreign and domestic capital within the Chinese economy.
Wu Xiaoqiu, a senior economist and vice-president of Renmin University of China, said during the next five years, opening-up of the financial sector would increase global use of the yuan, and the currency’s “internationalisation” process would accelerate.