PBOC to support Shanghai's trial in free exchange of RMB

China's central bank will support Shanghai to pilot the free exchange of renminbi and explore the free flow of capital to facilitate cross-border trade and investment, an official said on Tuesday at a press conference introducing Shanghai's further opening-up.

The People's Bank of China will back up Shanghai's trial in the free use of RMB, further facilitate the free flow of enterprises' trade and investment funds, and explore the free flow and free convertibility of capital in its Lingang Special Area, said Wang Xin, director-general of the PBOC's Research Bureau.

Wang noted that the free convertibility of RMB and the free flow of capital should meet anti-money laundering, anti-terrorist financing and anti-tax evasion regulatory requirements.

"The PBOC measures to facilitate trade and investment are bound to optimize the business environment in the Lingang Special Area," said Liu Chunsheng, associate professor at the Central University of Finance and Economics in China. "It is very important for enterprises to utilize domestic and foreign resources in the cross-border market," said Liu, adding that the constraint on the flow of capital will make them feel restrictive. The policy will encourage the inflow of foreign investment and create opportunities for the financial industry.

The RMB is convertible for trade purposes under the current account, but it is not freely convertible under the capital account, which covers portfolio investment and borrowing.

Some say the financial hub Shanghai, especially, should do more in this respect. The move will be conducive to foreign investors who have a growing willingness to hold RMB financial assets, as Shanghai is becoming a center for RMB assets allocation, pricing and risk management.

Shanghai will deepen its financial opening-up to develop RMB offshore transactions, cross-border trade settlement and overseas financing services, and increase the two-way opening of the market, said Chen Yin, Shanghai's executive vice mayor.

To meet the increasing global demand for RMB assets, China has been promoting the high-level opening-up of its financial sector, including the bond market, stock market, foreign exchange market, commodity futures market and financial derivatives market.

It has introduced programs including the Qualified Foreign Institutional Investors, Qualified Domestic Institutional Investor and Renminbi Qualified Foreign Institutional Investors to allow for more convenient capital flows.

The country has also removed restrictions on the proportion of foreign shares held in banks, securities, funds, futures and personal insurance.