Foreign Exchange News
- Govt. pledges steps to boost capital outflows
Date: 12-Dec-2006 Sources: (Shenzhen Daily)
THE government will push ahead with a series of reforms aimed at liberalizing its foreign exchange regime and encouraging capital outflows, a senior official with the currency regulator told a forum yesterday.
Deng Xianhong, vice head of the State Administration of Foreign Exchange (SAFE), also reaffirmed China's intention to gradually make the yuan more flexible while maintaining its exchange rate at a reasonable and balanced level.
In outlining the future direction of China's foreign exchange policies, Deng said it intended to gradually promote capital account convertibility so that the yuan will one day be freely tradable for purely financial purposes.
Deng said that it was hard to tell what level of foreign exchange reserves was appropriate for China. The appropriate level of the reserves, currently more than US$1 trillion, has been the subject of much debate in recent months.
'We should stop making an issue out of how much money China needs in foreign exchange reserves. Instead, we should focus on taking measures to curb the growing momentum of the capital and current account surpluses and promote balance in our international payments,'Deng said.
To that end, China would allow banks and insurers to work out more financial products and make overseas investments on behalf of Chinese individuals, expanding the Qualified Domestic Institutional Investor (QDII) program launched earlier this year, Deng said.
To encourage capital outflows, SAFE would also allow more securities brokerages to invest abroad and ease restrictions on their purchases of foreign exchange, he said.
The agency was also studying ways of allowing individuals to buy foreign exchange to invest abroad directly, he added.
Deng also said that China would strongly support companies venturing overseas, especially those pursuing mergers and acquisitions in industrial sectors.
Other measures Deng said China would pursue included:
- To encourage domestic firms and institutions to borrow money at home to curb the country's short-term foreign debt.
- Allowing more foreign institutions to issue yuan-denominated bonds, in addition to the International Finance Corp. (the private-sector arm of the World Bank) and the Asian Development Bank.
- Further simplify procedures for exporters and importers to use foreign exchange.
- Strengthen supervision of cross-border capital flows, including strictly implementing rules introduced earlier this year on foreign investment in the property sector.
- Introduce more currency derivatives and relax restrictions on them.
Speaking at the same forum, Wang Yungui, vice head of the international payments department of SAFE, said the agency was currently focusing more on spurring the country's currency forwards and swaps market rather than on launching new products, unless there were signs of strong market demand for them.
In another development, People's Bank of China Assistant Governor Yi Gang yesterday reaffirmed the government's determination to let market forces play a greater role in determining the yuan's exchange rate.
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