“After
the capital account is opened, the status of China’s financial markets
will be significantly elevated,” said Zhou Hao, a senior economist at
Commerzbank AG in Singapore.
“It will serve the authorities’ goal to make China one of Asia’s financial hubs, along with traditional centers such as Hong Kong and Singapore.”
Indeed, removing capital controls is necessary to make the yuan a global currency alongside the dollar and the euro, which has been one of the key goals for Beijing.
Bloomberg news agency reports that China’s authorities are poised to announce a 2020 deadline to lift currency controls that have kept the world’s second-largest economy from fully integrating with global financial markets.
According to a person with knowledge of the matter, next week top officials in the Communist Party will discuss attempts to “make the yuan convertible under the capital account." The promise would be registered in a document charting the country’s economic course through to 2020, known as the 13th Five Year Plan. The current document only offers an open-ended commitment to intensify such reforms.
Lifting the barriers would make China’s leaders relinquish a key means of economic control, with foreign investors and companies gaining greater access to the country and its 1.3 billion people.
China has intended to boost global yuan usage before an International
Monetary Fund review of its reserve-currency basket next month, and Beijing has signaled a freely convertible currency is essential to
building a strong domestic financial industry.
The official Xinhua News Agency reported earlier that the U.K. supports the yuan’s inclusion in the basket. As it stands, controls are so strict the yuan is traded at two levels: the onshore rate, inside China, and the offshore rate, open for direct access from foreign investors.
Even so, the authorities will hardly remove complete control over the capital account. Opening China’s borders will proceed “step by step, to make sure the risk can be contained,” Wang Xiaoyi, deputy director of the State Administration of Foreign Exchange, said at a briefing Thursday.
Mature member of the global economy
From a wider perspective, the shift reflects a new tone the party wants to take in the next five-year plan. Instead of depicting an economy racing to catch up with the rest of the world, no matter the cost, the new paper will present China as a mature member of the global economy, concentrated upon steady growth.
Some points which will likely appear in the document are already known: Beijing will emphasize home-grown technology for new-energy vehicles, robots and nuclear power, says Bloomberg. China would also seek to trim its reliance on core industrial components from overseas. The government is already pursuing a Made in China 2025 plan whose goal is to have 40 percent of core components and materials made at home by 2020.
The new blueprint would address some of the imbalances that were a consequence of 30 years of furious growth. Rather than striving for stubborn urbanization, the plan would look to make China’s urban and rural social welfare systems more equal. It would highlight reducing carbon emissions and bolstering the use of renewable energy, with a particular focus on wind and solar power.
