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People's Daily Online>>Opinion

China's capital account liberalization remains arduous (3)


16:39, March 01, 2012

China restricts the movement of money flowing into the country, including investments in real estate, stocks and bonds, to prevent a sudden influx and outflux of capital that could destabilize its financial system.

Such controls have served the country well. They protected China during the Asian financial crisis of 1998 and have helped the country weather the ongoing global financial crisis.

Guo Tianyong, director of the Banking Research Center at Beijing's Central University of Finance and Economics, said that large amounts of overseas capital will enter the country's banking system if the government lifts controls on its capital account, which will increase the availability of loanable funds and help lenders expand globally.

However, Guo also warned of possible risks, including a rise in non-performing loans and bad assets, as well as significant competitive pressure for domestic banks.

Zhao Qingming said China should widen the scope of QDII investment to encourage more domestic capital to be invested overseas.

QDII, or Qualified Domestic Institutional Investing, is a scheme adopted by the country in 2006 that allows Chinese institutions and residents to entrust Chinese commercial banks to invest in financial products overseas.

However, domestic investors have been reluctant to invest overseas in recent years, partly because of limited overseas investment products, expectations for a stronger yuan and higher returns from the nation's real estate sector.

China will also allow more qualified foreign institutional investors (QFII) to invest in the nation's capital markets under the QFII program, Zhao said.

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