HONG KONG |
HONG KONG (Reuters) - China on Thursday sent a strong signal it intends to push towards a freely tradable yuan, announcing plans for a test zone for the currency's convertibility in Shenzhen, the same city that first tried out China's broader economic reforms some 30 years ago.
A Chinese official speaking in Hong Kong gave no details on the plan to experiment with convertibility under the capital account in the planned $45 billion Qianhai Bay Economic Zone, an area close to Hong Kong that is envisaged as a 'mini-Hong Kong' when it is completed in 2020.
While the zone itself is yet to be built and the experiments are likely to be limited at first to specific aspects of the capital account, the new initiative makes clear that Beijing is actively working on its stated goal of moving towards capital account convertibility.
It would also build on other efforts to increase use of the yuan overseas, including a trade settlement program that has contributed to a thriving offshore yuan market in Hong Kong.
"This is a logical next step of the ongoing capital account opening and yuan internationalization," said Wei Yao, China economist at Societe Generale in Hong Kong.
"A lot of developments this year show that China is indeed sincerely committed to reforms and opening up."
By creating a specific corner of China buffered from the rest of the mainland to test out reforms, Beijing would be following a model it has used in the past, including the creation of Shenzhen as the country's first special economic zone in 1980 to try out broader reforms that were later rolled out across the country.
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Speaking to reporters after the launch of a yuan bond issue by China's finance ministry in Hong Kong, Wang Zhongwei, deputy director of the Information Office of the State Council, the country's cabinet, gave a preview of the special policies that will be applied to Qianhai, which is expected to become a financial services hub next to Hong Kong.
"(The government) will proactively conduct an experiment in exploring convertibility under the capital account in Shenzhen's Qianhai zone," Wang said.
It will also promote investment flows and financial cooperation between Shenzhen and Hong Kong, he added.
Wang repeated statements issued a day earlier through the Xinhua news agency that China would spur further development of Hong Kong's offshore yuan market as part of a new package of policies for the territory ahead the 15th anniversary of its return to China.
The statements also said China would promote the mutual listings of exchange-traded funds (ETFs) on Hong Kong and mainland stock exchanges and allow Hong Kong-based financial firms to set up consumer financing companies in Guangdong province, which includes Shenzhen.
While Wang gave no details on the convertibility plans, the Hong Kong government has said officials from China's National Development and Reform Commission, the state planning agency, and from the Shenzhen government will hold a news conference on policies concerning the Qianhai zone on Friday, ahead of a visit to Hong Kong by Chinese President Hu Jintao.
China has been steadily expanding the role played by Hong Kong in internationalizing the yuan, which it hopes will one day become a global currency like the dollar, and in building up the country's financial markets.
China has been steadily liberalizing its currency regime since 2005, but the tempo has accelerated this year.
Regulators in March extended to the whole country a pilot program that allowed companies in certain cities and provinces to settle trade in yuan.
They have expanded the scope of offshore yuan investment products in Hong Kong and gave the nod to the development of a nascent offshore yuan trading centre in London, which included the launch of a "dim sum" bond, or overseas yuan bond, in April.
That same month they widened the currency's onshore intraday trading band to 1 percent from 0.5 percent, increasing its sensitivity to market forces that move foreign currencies.
Regulations on two-way flows of yuan between Hong Kong and the mainland have also been eased, allowing Chinese companies that issue dim sum bonds in Hong Kong to repatriate and reinvest the proceeds as they see fit.
($1 = 6.3554 Chinese yuan)
(Additional reporting by Tian Chen, Kayla Zhang, James Pomfret and Michael Flaherty in Hong Kong; and Lu Jianxin and Pete Sweeney in Shanghai; Writing by Jason Subler; Editing by Edmund Klamann)
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