EXCLUSIVE: PBOC To Ease Outflow Rules In Global Yuan Drive

The People's Bank of China will take further steps to ease restrictions on outbound investments and boost convertibility of the capital account as it reinforces its drive to promote international use of the yuan, central bank officials have told MNI.

Financial regulators in the Guangdong-Hong Kong-Macau Greater Bay Area are already working on the soon-to-be launched Wealth Management Connect scheme, which will allow local residents to invest across borders, Bai Hexiang, head of the Guangzhou branch of the PBOC and a National People's Congress delegate, noted in written replies to questions.

Guangdong will also pioneer cross-border investment by private equity funds under the Qualified Domestic Limited Partner (QDLP) and Qualified Foreign Limited Partner (QFLP) schemes, he said, adding that more measures and pilot programs are likely to come.

BOND FLOWS

The PBOC is also working with Hong Kong authorities on China-to-HK trading via Bond Connect, to give domestic investors access to overseas bonds.

Moves such as these will increase the yuan's use in settlement of investment flows, helping boost the currency's role on the global stage, said Bai and Yang Xiaoping, head of the PBOC's Kunming branch and also an NPC delegate,

Expanded pilot programs launched last year by the State Administration of Foreign Exchange in Chongqing and Hainan for the QDLP and for the Qualified Domestic Limited Enterprises scheme, will allow resident institutions' limited purchases of overseas equities, noted Yang.

TRADE BOOST

With trade between China and its ASEAN neighbors continuing to grow, rising by 7% year-on-year to CNY4.74 trillion in 2020 despite the pandemic, Bai said increased use of the yuan could further consolidate the bloc as China's biggest trading partner. Yang agreed, pointing to the likelihood of improved free flow of the yuan in the ASEAN region.

China needs to work with its neighbours to strengthen financial infrastructure, including expanding CIPS (China's Cross-border Interbank Payment System), and the PBOC's cross-border clearinghouse and payment system, Yang said.

As China-ASEAN trade grows, more lenders in Southeast Asia should join CIPS, increasing the number of financial firms choosing the yuan for cross-border payment and settlements, he said.

CIPS is now available in 99 countries and regions, according to Yang.

Beijing should promote the yuan as a settlement currency of choice for commodities pricing and trading and increase the number of yuan-denominated financial products, he added.

Both officials stressed that capital account management is still needed to prevent risks, and that the pace of reform must be carefully controlled.

While the current increase of capital inflows is consistent with China's robust recovery, Bai said authorities would insist on counter-cyclical tools and monitor cross-border flows.

Internationalisation of the yuan should be undertaken in a "steady and prudent" manner, led by market demand, Yang said.