Expert: Concerns on capital flows overdone

Concerns that loosening controls over China's capital account may lead to strong volatility in capital flows are "overdone", Ma Jun, the chief economist at the central bank's research bureau, told a forum on Tuesday.

If the capital account convertibility materializes, "the capital either going into China or out of China is not going to be massive. There will be some, but maybe less than people think", Ma said in his first public speech after taking the post in April.

He argued that China's capital account is already partially open, but that hasn't led to massive capital inflows or outflows.

For example, in Hong Kong people can convert between the yuan and Hong Kong dollar, and private banks in Hong Kong provide essential capital account convertibility services to wealthy individuals.

He said if China further loosens its grip on capital flows, the chances of inflows and outflows will rise. Capital will flow into China's bond market seeking higher bond yields relative to overseas markets. Meanwhile, China's outbound direct investment is increasing.

"China needs to further increase the yuan's flexibility" to cope with the increase of capital outflows and inflows, said Ma, a former chief China economist at Deutsche Bank AG.

Ma's comments may suggest a relatively more liberal stance by the People's Bank of China over capital account liberalization, despite many domestic economists' caution.

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