Even if China continues to liberalise its capital account, a raft of restrictions will remain in place in 2020, says the Asia Securities Industry and Financial Markets Association (Asifma).
“With a 2020 horizon, we think that China’s capital account should be ‘open’, albeit with some Chinese characteristics,” says Carmen Ling, global head of renminbi solutions at Standard Chartered Bank, which jointly launched the report yesterday, titled Rmb Roadmap.
Asifma argues that investors will find it much easier to remit capital and access China’s onshore market, direct investment inflows will be easier, and quotas under the qualified foreign institutional investor (QFII) and renminbi qualified foreign institutional investor (RQFII) schemes will increase significantly.
However, despite wide-ranging reform, the association expects big deals and the repatriation of large amounts of capital will still be subject to approval.
The body foresees today’s strict controls on the repatriation of direct investment capital and on equity portfolio investment inflows being lifted completely, although they will likely still be monitored.
While foreign currency conversion for direct investment now requires approval by China’s State Administration of Foreign Exchange and/or reporting to the central bank, Asifma envisages free currency conversion by 2020, except for very large deals.
Also, more direct investment will be allowed in a much greater number of industries, and equity portfolio investment lock-up periods will be removed, the trade body predicts.
Meanwhile, the dollar, euro and renminbi will dominate the global financial markets in six years, Asifma forecasts. It sees daily RMB turnover growing from $120 billion today to more than $500 billion.
Asifma also believes that the China International Payment System for cross-border transfers will likely be fully operational by 2015.
Concluding the report, the trade body sets out its version of the country’s path to an internationalised renminbi.
It urges China’s regulators to permit foreign investors to freely transfer investment gains out of China; pilot the convertibility of renminbi capital items; allow cross-border renminbi usage; pilot market-determined financial interest rates; support cross-border renminbi reinsurance business; and allow qualifying capital and foreign financial institutions to do business in the financial services sector.