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People's Daily Online>>China Business

China liberalizes capital market

By Feng Jianmin   (Shanghai Daily)

09:13, April 11, 2012

China is opening up the domestic capital market and will allow freer outbound investment for residents, the country's foreign exchange administrator said yesterday.

Economists said the move indicated that China is shifting its focus from trading to capital markets in driving internationalization of the country's currency, due to weaker outlook in trade growth and yuan appreciation.

"To make the yuan convertible under the capital account is an important part of the reform of China's foreign exchange management system, but it's not the ultimate goal," the State Administration of Foreign Exchange said in a statement yesterday.

It said that progress will be gradual, and government departments should work together to minimize risk. Limits on foreign exchange converts when individuals make direct investment overseas will also be lifted.

The amount foreign institutions can invest in stocks, bonds, and bank deposits was raised last week from US$30 billion to US$80 billion. Economists believe that opening up of capital markets and allowing more local currency offshore will be the next focus of the government's measures to boost internationalization of the yuan, after weaker trade and slower appreciation hurt demand for the currency.

"It indicates that the government may speed up financial reforms," said Li Wei, an economist with Standard Chartered Bank. "China has realized that international usage and holding of the yuan has reached a bottleneck as the yuan's value reached a balance level, and demand through trading is weakening."

He said that now is a good time for China to run the financial reforms, as the outlook for the country's economy is stable.

Data released by the administration showed foreign direct investment into China amounted to US$1.63 trillion as of September last year, while China's overseas direct investment was US$345.5 billion.

Central bank data showed that cross-border trade settlement in yuan had totaled 2.08 trillion yuan (US$330.2 billion) by the end of last year since the program was launched in 2009.

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