China to Improve Management of Int'l Capital Flow

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Last updated at: (Beijing Time) Saturday, October 12, 2002

China to Improve Management of Int'l Capital Flow

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China will continue to improve its management of international capital flow while making efforts to reinforce macro-economic control and increase its economic strength, said the Governor of the People's Bank of China, Dai Xianglong, in Beijing on Friday.

Speaking at the 10+3 (ASEAN plus China, Japan and the Republic of Korea) High Level Seminar on the Management of Short-Term Capital Flow and Capital Account Liberalization, Dai said that international capital flow has provided international financial markets with more liquidity, optimized the global allocation of capital goods and filled the financing gap, thus promoting economic growth and well-being and improving the balance of payments (BOP) position of the recipient countries.

However, he said, if not supervised effectively, international capital flows, especially short-term speculative flows, could havea negative impact on the BOP, on financial markets, on economic performance and even on social stability in the host country.

In December 1996, China introduced current account convertibility and began to work towards capital account liberalization on a step-by-step basis according to the following guidelines: encourage foreign direct investment; strictly control foreign debt and work towards centralized administration of foreign debt; cautiously liberalize portfolio investments to avoid associated shocks; and develop a market-based, managed floating exchange rate regime.

According to Dai, China's capital account is to some extent liberalized at the moment, and convertibility and further liberalization is expected. In the coming years, China will continue its sound monetary policy in combination with its pro-active fiscal policy to sustain its seven percent GDP growth rate.

China will streamline the managed floating RMB exchange rate regime to increase its flexibility and linkage with the major currencies while maintaining a stable RMB exchange rate. Meanwhile, the capital account convertibility of the RMB will be carefully implemented, Dai said.

The governor said China is working on some policy initiatives related to the introduction of QDII and QFII and will implement such policies in due course when certain conditions are satisfied.

Dai also stressed that financial cooperation should be strengthened among Asian economies to jointly resist any possible shock generated by short-term capital flows.

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