Expert says expanding investment channels key to freer capital flow
The opening-up of the capital account in China is expected to speed up gradually, as the economy returns to stable growth, a senior Chinese economist said.
Zhu Haibin, chief China economist at JPMorgan Chase & Co, said opening up investment channels to allow freer flow of capital is essential if the yuan is to be used in international finance, a key part of the country's future economic reform.
He added that raising investment quotas under the country's Qualified Foreign Institutional Investors program, the primary channel for foreign capital to access China's capital markets, is likely to be the next impetus to develop the international yuan market, as previous initiatives had failed to halt its appreciation.
"Besides trade settlement, strengthening the investment role of the yuan is crucial for its internationalization."
The State Administration of Foreign Exchange and China Securities Regulatory Commission have taken major steps this year to broaden the financial channels for foreign institutional investors by lifting QFII quotas and those for the Renminbi Qualified Foreign Institutional Investor program, which permits qualified investors to channel offshore yuan funds into the mainland's stock and bond markets.
The QFII investment limit increased in April to $80 billion from $30 billion. The RQFII has allowed overseas brokerages, fund houses and trust firms to invest in mainland capital markets since 2002.
To satisfy surging demand from overseas investors, the RQFII quota was raised by 200 billion yuan in November from the previous 70 billion yuan.
"The quota is expected to be continually increased to further encourage both foreign direct investment and outbound direct investment over the next two or three years," said Zhu.
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