RMB convertible on capital account in five years

Updated: 2011-01-19 09:28


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BEIJING - China would progressively make its currency, RMB, convertible on the capital account in the next five years amid its push for the deeper internationalization of the currency, or yuan, the country's foreign exchange chief said Tuesday.

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"The overall strategy for the reform of China's foreign exchange management system is to achieve the convertibility of the yuan on the capital account progressively, as this will make trade and investment more convenient and boost the development of the foreign exchange market," said Yi Gang, head of the State Administration of Foreign Exchanges (SAFE), in a signed article published on SAFE website.

The remarks by Yi, also deputy governor of the People's Bank of China (PBOC), China's central bank, came after the PBOC announced last week that the country's qualified businesses and banks could now settle their overseas direct investment in yuan.

Yi also said the SAFE would continue to maintain a strict stance in cracking down on hot money inflows into the country during the next five years.

"China's foreign exchange management will face great pressure from 2011 to 2015 as external demand recovers in a stable manner and the country maintains a trade surplus," he said.

China's trade surplus for 2010 totaled $183.1 billion, down 6.4 percent from a year earlier, according to the General Administration of Customs, although it is expected to narrow in 2011, the Ministry of Commerce said on Tuesday.

"Import expansion is necessary for more balanced trade, and it will top the ministry's agenda for 2011," said Yao Jian, the ministry's spokesman.

Li Daokui, an adviser at the PBOC and professor at Tsinghua University, said at a forum in Beijing on Tuesday that China's surplus will decline to 1 percent of GDP in 2011.

Apart from the declining trade surplus, the country will continue to attract large amounts of FDI over the next five years mainly due to its lower labor cost, stable economic environment, and the clearer recovery trend of global direct investment, said Yi.

FDI in China hit a record $105.74 billion last year, up by 17.4 percent from one year earlier, the Ministry of Commerce announced on Tuesday. In December alone, the country attracted $14.03 billion in FDI, a 15.6 percent increase year-on-year, marking the 17th straight month of growth since August 2009.

"A small amount of 'hot money' could flow into China through channels such as trade and investment inflows, which is mainly spurred by the loose monetary policies of major developed economies and expectations of interest rate hikes and yuan appreciation. The large amount of foreign reserves will be increasingly challenging for asset management," he said.

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