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People's Daily Online>>China Business

Important measures in promoting RMB internationalization

By Wang Hui (People's Daily)

14:46, April 11, 2012

Edited and translated by People's Daily Online

China's decisions to increase the investment quotas for the qualified foreign institutional investors (QFII) and the RMB qualified foreign institutional investors (RQFII) are widely welcomed by the international financial community as important measures in promoting the internationalization of the RMB.

These measures are in line with the market expectations and will benefit the backflow mechanism of overseas RMB. These indicate that the opening up of RMB capital accounts will be accelerated, which are of great significance, said Yang Jiewen, senior strategist of the Development and Planning Department of Bank of China (Hong Kong).

Xie Dongming, economic analyst of the Overseas Chinese Banking Corporation (Singapore) said that the substantial increase in the quota of investment of foreign institutes in China's capital market represents a great support to the domestic market. At present, the low price in China's stock market is attractive to foreign capital. The increase in foreign investment quota is conducive to the introduction of foreign capital and will boost the confidence of the mainland market.

Improve the overseas RMB backflow mechanism

According to its announcement on April 3, China Securities Regulatory Commission together with the People's Bank of China and the State Administration of Foreign Exchange, approved by the State Council, decided to increase the QFII quota by 50 billion U.S. dollars and the RQFII quota by 50 billion yuan, which injects about 360 billion yuan to China's capital market.

"RQFII is a type of backflow mechanism for overseas RMB. The increase in RQFII quota indicates the further opening up of RMB capital accounts," said Xie Dongming. He said, the RMB flows toward overseas mainly through the channel of cross-border trade settlement. Since China's capital accounts are not fully open, the accumulated overseas RMB cannot flow back to the domestic market as investment. Therefore, the backflow mechanism needs to be improved to better attract overseas RMB and promote the internationalization of the RMB.

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