China’s Yi Says Conditions Ripe to Open Capital Account

China will push ahead with opening its capital account because current economic conditions are favorable, said Yi Gang, deputy governor of the nation’s central bank.

“I see lot of favorable conditions that are suitable for further liberalization in capital account,” Yi said during International Monetary Fund meetings in Washington yesterday. “In running an open economy you really need the capital account to be pretty much convertible.”

Yi said on April 17 that China will widen the trading band for the yuan “in the near future,” as the world’s second-largest economy looks to reform its foreign-exchange regime. The nation, which has the world’s largest foreign-currency reserves, is seeking to shift its growth model away from one reliant on exports by allowing more flexibility in the exchange-rate and the convertibility of its currency.

About 80 percent of capital account items listed by the IMF are convertible or partially convertible in China, Yi said. Conditions for the opening up of the capital account include “relatively good” economic fundamentals, sound public finance and banks and a flexible exchange rate, he said.

The capital account measures public and private investment flowing in and out of a country.

“We’ll steadily push the capital-account convertibility further,” he told reporters in Washington April 17. “You’ll see maybe in the next couple of years China step-by-step will go along that direction.”

Chinese Premier Li Keqiang, who took office a month ago, said he would deepen exchange-rate reform and further open the economy to market forces.

Trading Range

Yuan positions at Chinese financial institutions stemming from foreign-exchange transactions, a gauge of cross-border capital flows, climbed 295 billion yuan ($48 billion) in February, according to central bank data. Increases are a sign of inflows and January’s 684 billion yuan gain was a record, the data show.

The People’s Bank of China doubled the yuan’s trading band a year ago to 1 percent either side of its daily reference rate, which was fixed at 6.2416 per dollar yesterday, after being set at a record 6.2342 on April 17. China may expand the trading range of the yuan during the Group of 20 nations meeting in Washington this week, UBS analysts Manik Narain and Geoffrey Yu wrote in a note yesterday.

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