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China's capital account liberalization remains arduous

03-01-2012 16:46 BJT

BEIJING, March 1 (Xinhua) -- China's capital account liberalization will be a gradual process, as the country needs to improve its ability to address risks such as hot money and asset bubbles, analysts said.

China has made significant progress in capital account liberalization in recent years by gradually easing its grip on its currency as it moves toward full convertibility.

However, some experts have been pressing for faster loosening of the government's strict capital controls.

The latest instance was a central bank report published last week in the Financial News, which said "the time is ripe for the country to open up its capital account."

The report, written by Sheng Songcheng, head of the central bank's statistics department, listed the benefits of capital account opening, including assisting Chinese companies in expanding globally, promoting the internationalization of the yuan, restructuring the economy and increasing household investment channels.

"We might never find an appropriate time to open up a capital account if we wait until conditions mature for interest rate liberalization, currency liberalization and yuan internationalization," the bank official said.

The question of whether reforms will be implemented in the way the report envisions has yet to be answered.

"The timetable in the report cannot be regarded as an official timetable," said Zhao Qingming, a senior researcher with the China Construction Bank.

"The government will be cautious in promoting capital account liberalization, as once you fling the doors open to global capital, it will be difficult to close them," he said.

Higher interest rates for the yuan in comparison to foreign currencies have already been a magnet for overseas capital, leading to an influx of speculative money and arbitrage speculation.

Zhao said the instant loosening of capital account restrictions may attract more hot money, undermining the country's efforts to curb inflation and asset bubbles.


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