**MNI Exclusive: PBOC To Further Open FX Market, Boost QDLP

--More Schemes Freeing Capital Control May Be Issued 

--Impact from Trade Conflict With U.S. on Int'l Payment Controllable

--Surplus on Current Account To Expand 

     **BEIJING (MNI) - China's central bank plans to let more foreign firms

manage domestic investments in overseas markets as part of its measures to relax

restrictions on movement of capital in and out of the country, an official at

the bank's FX regulator told MNI in an interview. 

     The so-called Qualified Domestic Limited Partnership (QDLP), a scheme

allowing foreign institutions to tap into China's multi-trillion dollar wealth

management market, will be increased, and controls on the capital will be lifted

at an "active, gradual and controllable" pace, Wang Chunying, spokeswoman of

State Administration of Foreign Exchange, told MNI on the sideline of a press

conference on Thursday.

     "We have restarted a new round of quota issuance of Qualified Domestic

Limited Partnership (QDLP) in Shanghai and a similar scheme in Shenzhen since

the end of last year; it's an active trial for the opening up of capital

market," Wang said. 

     --GREATER CONTROL

     The promised greater latitude on capital is a reversal for the PBOC. The

QDLP scheme, first introduced in 2013, was suspended in late 2015, when China

tightened capital controls amid turmoil in its stock and currency markets, while

rapid depreciation of the yuan stoked fear of capital flight.

     The change came as SAFE said it is in greater control of capital flow as

the dollar index has weakened since last year, easing pressure on the yuan. Wang

said at the press conference that she expects the dollar to further weaken as

the end of the EU's quantitative easing outweighs the impact from U.S. rate

hikes. 

     SAFE is also using the relaxation to show it is responding to President Xi

Jinping's call to open its markets, Wang added. 

     Wang declined to answer MNI's question on the current progress of QDLP

issuance, but market sources told MNI that the quota issuance has nearly

completed. 

     "Regulators have issued quotas quietly. Bigger institutions are the

recipients, as regulators seek to manage risks," a source in a foreign bank in

Shanghai told MNI. The market doesn't expect the government's opening-up

measures to be significant yet, he said.

     --CAPITAL ACCOUNT CONVERTIBILITY

     At the press conference, Wang ensured that the country will further push

forward capital account convertibility by opening up domestic stock and bond

markets, accelerating China-London Stock Connect and optimize FX management

system.

     "China will support qualified and capable companies to conduct legal

outbound investment while building up a sound and competitive FX market," Wang

said.

     Following Xi's directive on further opening up and PBOC Governor Yi Gang's

remark that China would steadily push ahead capital account convertibility, SAFE

announced last week it was studying dollar-denominated Qualified Domestic

Institutional Investor (QDII) reform and will improve macro-prudential

management of the investment scheme.

     Wang reiterated the effort during the press conference by predicting the

cross-border capital flow of the country will remain largely in balance in 2018,

particularly in current account.

     --EXPANDING SURPLUS 

     While answering MNI's question on the influence of Sino-U.S trade spat to

the country's international payment, Wang said "impact from the trade conflicts

is under control."

     The current account surplus will be further expanded as the deficit growth

in outbound travel and investment slows. 

     China's service trade deficit will likely decrease as spending on overseas

travel and study has likely peaked, Wang said, adding return from China's direct

investment overseas will rise as Chinese companies improve their performance.

     As a result, the country's current account surplus may likely increase,

Wang said.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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