China ready to free capital flows?

Updated: 2013-05-13 10:48

(Xinhua)

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BEIJING - As the Dow Jones Industrial Average climbed to an all-time high above 15,000 points last week, Zhang, a shoe factory owner in the Chinese city of Wenzhou, yearned to draw money from lackluster domestic markets and invest in US stocks.

But he could not.

Two years ago, when Zhang (his surname) tried to buy a stake in a private American company, he could only get his yuan assets out of China through underground money exchangers.

China only allows a limited number of financial institutions to buy stocks and bonds overseas, as it fears demolishing its currency curb could trigger a capital flight and lead to instability of the financial market in the world's second largest economy.

"But now I see a bit of hope. Ordinary investors finally can anticipate access to diverse options," Zhang said.

China's cabinet pledged on Monday to steadily introduce market-oriented interest rate and exchange rate system reform measures, permitting individual investors to buy foreign equities and mapping out "operational" plans to make the Chinese yuan convertible under the capital acccounts.

"It's not a surprising move. The regulators have been inching towards an opened capital account," said Yao Wei, China economist with Societe Generale. "An opened capital account will make China's financial market more efficient, more transparent, and up to international standards."

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