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China relaxes capital controls to encourage outflow of money
China further loosened its capital controls on Monday to encourage money to flow out of the country and so tackle the economic problems generated by its record trade surplus.
- Reuters
- Published: 23:37 August 20, 2007
Beijing: China further loosened its capital controls on Monday to encourage money to flow out of the country and so tackle the economic problems generated by its record trade surplus.
Residents will be permitted for the first time to invest directly in Hong Kong-listed securities under a pilot programme to be launched in the northern port city of Tianjin, the State Administration of Foreign Exchange (SAFE) said.
"Although there are limits, this is a historic move in China's capital account opening," said Stephen Green, an economist with Standard Chartered Bank in Shanghai.
An official at Bank of China in Tianjin said the scheme was due to be up and running by September.
The prospect of a wall of Chinese cash helped drive the index of Hong Kong-listed shares in mainland companies up by 8.74 per cent, their biggest one-day rise since May 2000.
Zhao Xiao, a professor with Beijing's University of Science and Technology, said it was the most important financial development this decade apart from China's accession to the World Trade Organisation in 2001 and the yuan's revaluation in 2005.
"If China wants to be an international player, it has to open its capital account, and it has to allow its residents to invest abroad."
Forex reserves
SAFE, the currency regulator, said it was acting because China had accumulated sufficient foreign exchange reserves - $1.33 trillion at the end of June - to satisfy individuals' growing appetite for overseas stocks.
Many Chinese have evaded the capital controls and opened brokerage accounts in the special administrative region.
Rules limiting the purchase of foreign exchange by individuals to $50,000 a year will not apply for the pilot scheme: Investors will be able to convert an unlimited amount of yuan into foreign currency and invest it in Hong Kong.
SAFE said the purpose of the trial was to "accumulate relevant experience on risk control and administration, and prepare for further expansion of overseas securities investment for individuals".
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