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

The Lujiazui area in east China's Shanghai. /VCG

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

The People's Bank of China (PBOC) 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, an official with the PBOC.

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 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 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. It has cancelled restrictions on the access of foreign capital to areas such as corporate credit management, rating and payment.