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China cautiously hastens capital account reform

Xinhua | Updated: 2013-05-09 12:30

BEIJING - China's latest call for an "operational plan" to achieve yuan convertibility under the capital account has raised the prospect of a specific reform timeline, although the government will likely conduct the reform step-by-step rather than all at once, analysts said.

The State Council, or China's Cabinet, said Monday that a plan to make the currency convertible under the capital account will be proposed this year, indicating that a blueprint for the long-discussed reform is in place.

"China should come up with a general target this year and gradually phase in specific measures," said Zong Liang, deputy head of the Institute of International Finance at the Bank of China.

He said he expects the convertibility goal to be achieved by 2020.

Currently, the yuan is convertible for trade purposes under the current account, while the capital account, which covers portfolio investment and borrowing, is still largely controlled by the state over concerns of abrupt capital flows moving in and out of the country.

The timing and speed for opening the capital account, as an important part of the country's intended financial reform and the yuan's internationalization, has resulted in divided views among market analysts, with some suggesting quicker steps and others describing such radical moves as disruptive to the financial market.

"Yuan convertibility under the capital account will hinge on the further liberalization of interest rates and exchange rates, as the distorted price of capital may misguide money flows," said Liu Dongliang, a senior analyst at China Merchants Bank.

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