HSBC economists (Hogbin Qu, HSBC chief economist for China and two other HSBC economists specialising in the analysis of the Chinese market – Sun Junwei and Ma Xiaoping) believe that the Chinese yuan will become a convertible currency in the next five years. The announcement hopes to accelerate the opening of the Chinese “capital account” to the decision-makers in Beijing.
HSBC Experts believe that the pace of change in this direction over the next few years will be much faster than many expected and, therefore, the RMB could become a fully convertible currency within the next 5 years. They expect the Chinese capital markets will be allowed a broader group of foreign investors, and that a larger group of Chinese people will be able to invest abroad.
In the opinion of economists at HSBC, conditions are conducive to the further actions of the Chinese government towards full convertibility of the yuan. Conditions are favourable, as mentioned in the report:
- More developed domestic financial market
- More sustainable capital flows
- The rapid development of trade settlements
HSBC analysts expect Beijing will take the following steps to further liberalise “capital account”:
- Further expansion of the QFII (Qualified Foreign Institutional Investors), which opens the Chinese domestic stock market to foreign investors; the limit of capital investment by foreign investors under the program was recently increased from $30 billion to $80 billion
- Removal of restrictions on the involvement of foreign investors in the domestic bond market and futures
- Increasing the limit of foreign currency buying pool for individuals, which currently stands at 50 thousand U.S. dollars per year and there is no evidence that there was an increased risk of cash flow, despite the rapid growth in the number of Chinese tourists, HSBC economists believe that the pool will be increased to 200 thousand. U.S. dollars in the coming years;
- A national permit for individuals to invest in foreign markets, a pilot program conducted in the city of Wenzhou is likely to be extended to other regions;
- Allowing foreign companies to obtain financing in RMB in the domestic capital market.
- China eyes more foreign investment as it raises quotas (chinadailymail.com)
- Regulator Says China Able to Increase Foreign Investor Access (bloomberg.com)
- China likely to significantly expand RQFII quota: regulator (wantchinatimes.com)