China Central Bank Study Urges Relaxing Curbs on Capital Flows
China has a “strategic opportunity” now to relax restrictions on capital flows to take advantage of lower values of Western companies and elevate the yuan’s role in international trade, a central bank study said.
Opening the capital account would ease overseas investment by Chinese companies and their purchases of technology and resources, the People’s Bank of China publication Financial News reported today, citing a study by the statistics department. The risks now are relatively small, according to the report, whose lead researcher is Sheng Songcheng, the department head.
Premier Wen Jiabao is encouraging the wider use of the yuan in international trade and investment to curb reliance on the U.S. dollar while maintaining some controls on funds flowing in and out of China. Officials have said they want to gradually achieve the yuan’s full convertibility under the capital account by 2015.
The government is “quite keen now on pushing the RMB as a global currency,” Murtaza Syed, the International Monetary Fund’s resident representative in Beijing, said yesterday, using another term for the yuan. “If you don’t allow the RMB that’s accumulating abroad to flow back into China, to be able to invest in assets here, you will never fulfill the potential of the RMB as a global currency.”
Values of Western companies are relatively low at present, which provides a “rare” market opportunity for Chinese firms, the study said. The Stoxx Europe 600 Index, even with an 8 percent rally this year, is down 34 percent since July 2007 amid the global financial crisis and the continent’s sovereign-debt turmoil.
Opening the capital account also would expand investment options for households, helping them accumulate wealth and increase consumption, it said. The process of liberalizing the capital account should be “proactively” pushed forward while being handled with “prudence,” the study said.
“The right time window for opening the capital account may not arrive at all” if China waits until changes to the interest-rate and exchange-rate systems are made and the “conditions for yuan internationalization are ripe,” the report said.
--Zheng Lifei. Editors: Scott Lanman, Paul Panckhurst
To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
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