China to open up capital account further
(AFP)
Updated: 2006-03-01 14:47

China has reiterated plans to make its capital account basically convertible, the Chinese press said Wednesday, a move the government has long promised as it strives to make its currency more flexible.

China has reiterated plans to make its capital account basically convertible, state press said Wednesday. [AFP]

"China plans to make the yuan convertible under the capital account in the near future although complete convertibility is still a long-term goal," State Administration of Foreign Exchange director Zou Lin was quoted by the Shanghai Securities News as saying.

The government will encourage greater outflow of capital while still maintaining an overall balance on the entry and exit of money, Zou said. Chinese institutional investors would be the first to benefit from the long-promised reform athough changes expected "soon" were still in the research stage, Zou said.

Earlier press reports have said that specially qualified domestic securites firms would be the first to be allowed to invest in overseas markets with their own foreign currency holdings.

The latest comments follow remarks by the central bank last week that China would speed up the process of making the yuan fully convertible under the capital account and relax restrictions on outbound investment.

China's currency is convertible on the current account, which measures trade and financial transfers, but still restricts the capital account, which covers the net flow of capital, in part to protect its fragile banking system.

Liberalising the capital account is part of China's overall reform to make its currency regime more market oriented.

The central bank delinked the yuan from the US dollar last July by revaluing the Chinese unit 2.1 percent and placing the unit in a managed basket of currencies but trading partners are pressuring for greater change.