Full RMB convertibility within five years looking increasingly likely, says HSBC
10 May 2013
Category: News, China, Global
By Hui Ching-hoo
HSBC is voicing increased confidence in its view that the RMB will likely become fully convertible within five years, after China’s State Council outlined nine key measures to deepen economic reforms on Monday (May 6). With this, the government body vowed to unveil an operational plan for RMB convertibility in 2013.
HSBC Co-Head of Asian Economic Research Qu Hongbin said in a report published on Wednesday (May 8) that the next step in the process of capital account liberalisation will be the expansion of existing QFII, QDII and RQFII programmes, alongside the opening up of individual cross-border investments.
“We expect things to change quickly as rules are now being relaxed for both the approval process for qualified institutional investors as well as for the products they can invest in,” he said. “Following the recent acceleration of QFII, RQFII, and QDII programmes, further growth and a greater variety of investment instruments can be expected in the near future.”
Capital account convertibility and RMB internationalisation will develop further as a number of Chinese cities, including Shanghai, Tianjin and Beijing, are preparing to launch pilot programmes that will allow their residents to invest abroad, said Mr. Qu. However, he notes that getting the onshore financial house in order is a precondition for full convertibility.
Before making the RMB convertible, China needs to liberalise interest rates and develop a fully functioning bond market. Interest rate liberalisation lies at the heart of China’s financial market reform and is crucial for the development of a fully functioning bond market. It is also one of the goals set out in the government’s 12th five-year plan.
Mr Qu said: “Beijing is already taking steps to speed up the process and we expect further development in the coming years.”
According to him, the next steps will likely include: (1) Further expanding the floating band for deposit rates and freeing up deposit rates; (2) Reducing the number of categories of lending rates currently under regulation from five to three and finally to only one – which will be the benchmark lending rate; cutting the number of categories of regulated deposit interest rates from seven to five or fewer; (3) The establishment of a deposit insurance scheme; and (4) Enhancing the Shanghai interbank offer rate (SHIBOR) as a pricing benchmark.”
When China’s domestic financial house is in order, China’s onshore markets will be ready to become more open to foreign investors, Mr. Qu claimed. In turn, this will pave the way for the RMB to gradually achieve capital account convertibility: “We are now more confident on our call that the redback will likely become fully convertible within five years,” he said.
http://www.asiaasset.com/news/News_HSBCRMBconvert.aspx
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China cabinet urges detailed yuan convertibility plan
May 6 (Reuters) - China's cabinet has called for the drafting of detailed plans to help achieve full convertibility of the yuan, raising the prospect of accelerating reforms to free up the currency eventually.
"We should have operational plans on achieving the convertibility of the renminbi (yuan) under the capital account," state radio quoted Premier Li Keqiang as telling a regular meeting of the State Council, or the cabinet.
No details on yuan convertibility were given in a summary of the meeting published on the central government's website,
www.gov.cn.
While the Chinese currency is already convertible under the current account - the broadest measure of trade in goods and services - the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing as it worries about abrupt capital flows.
Chinese officials have not given a timetable on a freely trade yuan, although the central bank has outlined the task of making the yuan "basically convertible" by 2015.
Beijing may have to loosen its grip on the yuan to support its long-term ambition to increase the global clout of its currency to rival the U.S. dollar and euro, analysts say.
Li also said that the government will steadily roll out market-based measures to reform the country's interest rate and exchange rate regimes.
"To stabilise growth and control inflation, risks and upgrade the economy, we must urgently deepen reforms and unveil concrete measures," Li said.
Annual economic growth unexpectedly slowed to 7.7 percent in the first quarter from 7.9 percent in the previous three months.
The government will push forward fiscal reforms while taking steps to rein in local government debt, Li was quoted as saying.
"We should improve the risk control measures on local government debt," he as saying.
China will set up regulations on overseas investment for individual investors while regulating the development of bonds, equity and trust markets, the cabinet said.
The country also plans reforms to railway investment and financing systems, including allowing private investors to enter parts of the state-dominated sector
http://www.reuters.com/article/2013/05/0...OG20130506
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INSIGHT-Despite curbs, China's vast hot money triangle flourishes
http://www.reuters.com/article/2013/05/1...GJ20130519
That's how I built up my knowledge base... By beh paiseh asking lots and trying to link up with reality
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