China approves limited convertibility in FTZs
Print Edition
CHINA has approved limited yuan convertibility under the capital account for free trade zones in Fujian, Guangdong and Tianjin, a step closer to freeing up cross-border capital flows, the central bank said yesterday.
Each domestic institution registered in the FTZs and operating in areas beyond the negative list is allowed to convert up to US$10 million in yuan for both cross-border revenue and expenditure annually, the People’s Bank of China said.
Qualified institutions will be able to conduct cross-border financing and investments freely within the quota, the central bank said in guidelines on its website yesterday.
China liberalized its trade accounts nearly 20 years ago, but transactions under the capital account are still subject to regulatory restrictions. The latest move marks a significant development in China’s bid to ease its tight grip on the capital account and to promote the use of yuan globally.
It follows International Monetary Fund approval on November 30 for the yuan to join the dollar, euro, pound and yen in the basket of currencies that make up its Special Drawing Rights.
“We expect more pilot programs to be launched in these FTZs on implementing the negative list approach and developing yuan cross-border financing and investment opportunities,” said Liu Linan, a Deutsche Bank strategist.
The bank expected growth of yuan investment settlement flows to grow by 10 percent year on year to 9.4 trillion yuan (US$1.5 trillion) next year, outpacing the growth of trade settlement flows.
The measure to boost yuan convertibility was part of three packages of policies to support financial liberalization in the FTZs.
Non-banking financial institutions and enterprises based in the zones will be able to borrow yuan funds from overseas markets, but the funds are not allowed to invest in securities and wealth management products, the central bank said.
It also said it would allow qualified domestic individuals to invest yuan funds in overseas capital markets while allowing qualified foreign individuals to invest in domestic capital markets.
In addition, banks in Fujian FTZ are allowed to conduct short-term yuan lending or borrowing with financial institutions in Taiwan, the bank said. Multinational companies with subsidiaries in Fujian and Tianjin FTZs will be able to issue yuan-denominated bonds in onshore market, according to the guidelines.
The bank is also allowing institutional investors in Hong Kong and Macau to set up qualified domestic limited partnerships in the Guangdong FTZ to raise yuan funds for investment in the Hong Kong capital market.
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