BEIJING, April 17 (Reuters) – China is at a promising moment
for speeding up interest rate and exchange rate reforms, the
central bank’s statistics department said in a report published
Tuesday, following the latest move to make the Chinese currency
more flexible.
China widened the daily band in which its currency may trade
and allowed banks to short sell a limited amount of U.S. dollars
.
“The current time represents a rare strategic moment to
speed up capital account opening,” said the report, published in
the China Securities Journal.
It said this was because ample foreign exchange reserves and
progress in internationalising the yuan are helping Chinese
companies invest overseas as they look to escape over-capacity
at home. They have space to do so because of the contraction in
global investment by Western companies and funds, it added.
“The yuan is not far from becoming an international reserve
currency,” the report said.
The report dismissed the idea that introducing more
flexiblity to the Chinese currency would attract inflows of hot
money that the government would find difficult to control.
“As a big country, our interest rate and exchange rate are
not decided by international capital flows. Interest rates are
decided by domestic economic and financial conditions, the
exchange rate is primarily determined by trade conditions with
other countries,” the report said.
China’s banks have rolled out wealth management products
that pose a challenge to Beijing’s grip on interest rates.
Such wealth products yield returns that are well above the
benchmark interest rates. For example, some banks in Beijing
offer 4.7-4.8 percent annual return for 100-day products
compared to the one-year deposit rate of 3.5 percent.
Many reformers in China and overseas economists have argued
that China’s future economic growth depends on politically
unpalatable reforms, including libralising the currency and the
state-set interest rates that guarentee profits for state-run
banks and distort the lending market.
But the Chinese government and ruling Communist Party have
been reluctant to give up such a powerful policy tool.
(Reporting by Lucy Hornby and Zhou Xin; Editing by Kevin Yao
and Joseph Radford)
