China Plans 2020 Deadline for Dismantling Capital Controls# Stock
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October 22, 2015 — 12:25 AM CDTUpdated on October 22, 2015 — 4:55 AM CDT
General Views Of Shanghai As China's Lingering Deflation Risks Offer Room
For More Easing
square before the information
China’s leaders are poised to announce a 2020 deadline to dismantle
currency controls that have kept the world’s second-largest economy from
fully integrating with global financial markets.
At a gathering next week, top officials in the Communist Party will discuss
pledging to “make the yuan convertible under the capital account,”
according to a person familiar with talks now under way. The promise would
be codified in a document charting the country’s economic course through to
2020, known as the 13th Five Year Plan. The current document only offers an
open-ended commitment to “speed up” such reforms.
Such a promise, which may be cut from the final version, would float China’
s currency and bring about a fundamental shift in the global economy as
capital sloshed uninhibited between China and the rest of the world.
Removing the barriers would force China’s leaders to relinquish a key means
of economic control, with foreign investors and companies gaining greater
access to the country and its 1.3 billion people.
“After the capital account is opened, the status of China’s financial
markets will be significantly elevated,” said Zhou Hao, a senior economist
at Commerzbank AG in Singapore. “It will serve the authorities’ goal to
make China one of Asia’s financial hubs, along with traditional centers
such as Hong Kong and Singapore.”
è
Making the yuan a global currency alongside the dollar and the euro has been
a key goal for the government, and removing capital controls is necessary
to achieve that.
China has pushed to bolster global yuan usage before an International
Monetary Fund review of its reserve-currency basket next month, and
authorities have signaled a freely convertible currency is key to building a
strong domestic financial industry. On Thursday, the official Xinhua News
Agency said the U.K. supports the yuan’s inclusion in the basket. As it
stands, controls are so strict the yuan is traded at two levels -- the
onshore rate, inside China, and the offshore rate, which foreign investors
can access directly.
Even so, the government isn’t expected to relinquish complete control over
the capital account. Opening China’s borders will proceed “step by step,
to make sure the risk can be contained,” Wang Xiaoyi, deputy director of
the State Administration of Foreign Exchange, said at a briefing Thursday.
More broadly, the change reflects a new in tone the party wants to project
with the next five-year plan. Rather than an economy racing to catch up with
the rest of the world, no matter the cost, the new document will present
China as a fully fledged member of the global economy, focused on steady
growth.
“It will be a bumpy road ahead as China goes through a challenging economic
transition and liberalization amid slower growth, high corporate leverage
and national debt, widespread overcapacity, a deflating housing bubble and
prevalent moral hazard in the financial sector,” economists at Barclays PLC
said in a report ahead of the five-year plan.
The People’s Bank of China and National Development and Reform Commission
didn’t immediately respond to faxed requests for comment Thursday. Chinese
leaders will release a final five-year plan document after the nation’s
legislature meets in March.
Other reforms being considered for the document would further knock down
barriers that the leadership has used to maintain control of the economy.
They include a proposal to lower obstacles to entry for non-bank financial
firms from abroad, like companies in the securities, trusts and insurance
sectors, according to the person, who asked not to be identified because the
deliberations are private. There would be more room for Internet finance
and investment from the private sector.
Some plans likely to be in the document are already known: The government
will put an emphasis on home-grown technology for new-energy vehicles,
robots and nuclear power, according to the person. China would also seek to
reduce its reliance on core industrial components produced overseas, they
said. The government is already pursuing a Made in China 2025 plan which
aims to have 40 percent of core components and materials made domestically
by 2020.
The new blueprint would seek to address some of the imbalances that resulted
from 30 years of breakneck growth. The plan would look to make China’s
urban and rural social welfare systems more equal rather than pushing for
relentless urbanization. It would emphasize reducing carbon emissions and
boosting the use of renewable energy, with a particular focus on wind and
solar power, the person said.
General Views Of Shanghai As China's Lingering Deflation Risks Offer Room
For More Easing
square before the information
China’s leaders are poised to announce a 2020 deadline to dismantle
currency controls that have kept the world’s second-largest economy from
fully integrating with global financial markets.
At a gathering next week, top officials in the Communist Party will discuss
pledging to “make the yuan convertible under the capital account,”
according to a person familiar with talks now under way. The promise would
be codified in a document charting the country’s economic course through to
2020, known as the 13th Five Year Plan. The current document only offers an
open-ended commitment to “speed up” such reforms.
Such a promise, which may be cut from the final version, would float China’
s currency and bring about a fundamental shift in the global economy as
capital sloshed uninhibited between China and the rest of the world.
Removing the barriers would force China’s leaders to relinquish a key means
of economic control, with foreign investors and companies gaining greater
access to the country and its 1.3 billion people.
“After the capital account is opened, the status of China’s financial
markets will be significantly elevated,” said Zhou Hao, a senior economist
at Commerzbank AG in Singapore. “It will serve the authorities’ goal to
make China one of Asia’s financial hubs, along with traditional centers
such as Hong Kong and Singapore.”
è
Making the yuan a global currency alongside the dollar and the euro has been
a key goal for the government, and removing capital controls is necessary
to achieve that.
China has pushed to bolster global yuan usage before an International
Monetary Fund review of its reserve-currency basket next month, and
authorities have signaled a freely convertible currency is key to building a
strong domestic financial industry. On Thursday, the official Xinhua News
Agency said the U.K. supports the yuan’s inclusion in the basket. As it
stands, controls are so strict the yuan is traded at two levels -- the
onshore rate, inside China, and the offshore rate, which foreign investors
can access directly.
Even so, the government isn’t expected to relinquish complete control over
the capital account. Opening China’s borders will proceed “step by step,
to make sure the risk can be contained,” Wang Xiaoyi, deputy director of
the State Administration of Foreign Exchange, said at a briefing Thursday.
More broadly, the change reflects a new in tone the party wants to project
with the next five-year plan. Rather than an economy racing to catch up with
the rest of the world, no matter the cost, the new document will present
China as a fully fledged member of the global economy, focused on steady
growth.
“It will be a bumpy road ahead as China goes through a challenging economic
transition and liberalization amid slower growth, high corporate leverage
and national debt, widespread overcapacity, a deflating housing bubble and
prevalent moral hazard in the financial sector,” economists at Barclays PLC
said in a report ahead of the five-year plan.
The People’s Bank of China and National Development and Reform Commission
didn’t immediately respond to faxed requests for comment Thursday. Chinese
leaders will release a final five-year plan document after the nation’s
legislature meets in March.
Other reforms being considered for the document would further knock down
barriers that the leadership has used to maintain control of the economy.
They include a proposal to lower obstacles to entry for non-bank financial
firms from abroad, like companies in the securities, trusts and insurance
sectors, according to the person, who asked not to be identified because the
deliberations are private. There would be more room for Internet finance
and investment from the private sector.
Some plans likely to be in the document are already known: The government
will put an emphasis on home-grown technology for new-energy vehicles,
robots and nuclear power, according to the person. China would also seek to
reduce its reliance on core industrial components produced overseas, they
said. The government is already pursuing a Made in China 2025 plan which
aims to have 40 percent of core components and materials made domestically
by 2020.
The new blueprint would seek to address some of the imbalances that resulted
from 30 years of breakneck growth. The plan would look to make China’s
urban and rural social welfare systems more equal rather than pushing for
relentless urbanization. It would emphasize reducing carbon emissions and
boosting the use of renewable energy, with a particular focus on wind and
solar power, the person said.
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