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China's foreign exchange regulator has stressed the
goal of generally freeing up in-and outbound cross-border capital flows
in the mid-term to long term, and of building a capital management
foundation for personal investment in foreign markets, according to a
senior official. Two-way free floating of cross-border capital should prevent
violation of national security rules and limit high-risk trading. It
should comply with requirements against money laundering, terrorist
financing and tax evasion, Zheng Wei, deputy director of the State
Administration of Foreign Exchange, said at the 2020 China Financial
Forum on Saturday. "We will also establish a system to manage personal cross-border
capital transactions, which will satisfy reasonable requirements on
individuals' outbound investments and their use of foreign exchanges,"
Zheng said as she specified the SAFE's key tasks in keeping with China's
14th Five-Year Plan (2021-25). During that period, China will cancel or ease limits on cross-border
investment and financing, expand foreign debt registration pilot
programs and launch a unified capital pool for multinational companies
to use renminbi and foreign currencies for investment, she said. Experts say that will be a significant move toward fulfilling Chinese
authorities' vow to gradually ease control on cross-border capital
investment, which is the foundation of achieving a free-floating,
market-oriented exchange rate for the renminbi. Specifically, China will launch a policy framework for cross-border
investment of private equity funds, using a negative list to manage the
funds' overseas financing, Zheng said. Meanwhile, the regulator will regularly issue quotas to domestic
investors to encourage their purchases of financial instruments in
foreign markets, under the Qualified Domestic Institutional Investor
procedure, as well as launch pilot programs for cross-border wealth
management products, Zheng said. Policymakers and advisers have proposed adopting "high-level opening
to the outside world", involving trade and investment liberalization, in
the development plan for the next five years. The idea is that opening
the financial system to overseas firms will usher in competition that
could promote more efficient distribution of foreign and domestic
capital within the Chinese economy. Wu Xiaoqiu, a senior economist and vice-president of Renmin
University of China, said that during the next five years, opening-up of
the financial sector will increase global use of the renminbi, and the
currency's "internationalization" process will accelerate. The opening-up of China's foreign exchange market will also be
improved in the coming years, based on a market-oriented process, Liu
Guiping, vice-governor of People's Bank of China, the central bank, said
on Saturday. 'Fostering real demand' Liu promised to support free use of the renminbi in global trade and
investment and to encourage overseas investors buying onshore bonds and
stocks to use the renminbi through more sophisticated connecting
programs between onshore and offshore markets. "The renminbi's internationalization in the future will base on
fostering the real demand for the currency overseas, and the government
will encourage its use, especially in East Asia and countries related to
the Belt and Road Initiative," said Zhang Ming, deputy head of the
Chinese Academy of Social Sciences' Financial Research Institute. The signing of the Regional Comprehensive Economic Partnership, the
world's biggest trade pact, will provide a new driving force to renminbi
internationalization, especially in neighboring countries, Zhang said. In October, the RMB ranked as the sixth most active currency for
global payments by value, with a 1.66 percent share, according to the
Society for Worldwide Interbank Financial Telecommunication. In terms of international payments, excluding those within the
eurozone, the RMB ranked as eighth with a share of 1.09 percent in
October, it said.
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