SHANGHAI: China will allow unfettered exchange of its yuan currency in its first free trade zone, a draft plan yesterday showed, in a bold push to reform the world’s second largest economy.
The free trade zone (FTZ) in Shanghai is intended to make the city into a true international trade and financial centre and challenge the free economy of Hong Kong, a special administrative region of China, analysts and government officials said.
Premier Li Keqiang, who took office in March, is backing the zone — which his cabinet approved last month — to be one of the crowning achievements of his administration, they said.
The draft plan showed the FTZ goes beyond greater liberalisation of trade to take in investment and financial services, including free convertibility of currency.
Convertibility of the yuan — allowing the currency to be freely bought and sold, and with it the movement of funds into and out of China — is the main obstacle preventing Shanghai from competing with global financial centres such as Hong Kong, New York or London. The government keeps a tight grip on the capital account on worries that unpredictable inflows or outflows could harm the economy and reduce its control over it.
But companies in the zone will have the freedom to trade the yuan, also known as the renminbi, according to the plan. China’s yuan currency has so far only been convertible for trade — to buy imported goods or turn revenue from exports back into local funds.
A government official said companies registered in the FTZ could open special accounts to freely exchange yuan, but with only a few exceptions they would be required to close their onshore Chinese accounts.
Afp
