China currently faces a strategic opportunity in opening its capital account, a central bank official has said.
The capital account, together with the current account, are two primary components of a country's balance of payments. It reflects the net change of public and private international investments flowing in and out of a country. China's capital account is partially convertible, and the country has recently been relaxing its regulations governing the field.
Opening the country's capital account will be helpful to Chinese enterprises bidding to expand globally at a time when global asset values are at a low level, Sheng Songcheng, head of the statistics department at the People's Bank of China, said Wednesday.
It will also help promote internationalization of the yuan, restructure the economy, and expand household investment channels, Sheng told the China Securities Journal.
"The risk to take the move is not big," he said, citing little likelihood of a currency mismatch in commercial banks' assets and liabilities after opening the capital account, and limited affects of price changes on foreign reserves that were largely invested in bonds.
The facts that the country's short-term external debt balance only takes a small share of total, and that debts and hazards posed by its property and capital markets are controllable also help mitigate the risk, Sheng added.
"There may never be a proper timing for pushing the reform, if the country waits until conditions mature for the interest rate and exchange rate to be decided by the market and the yuan to become a global currency," the bank official said.
While warning that making preconditions will delay the opportunity for reforms, Sheng suggested optimizing the opening sequence of capital account items, by first pushing reforms with high prospective returns and later launching more risky reforms.
For instance, the government could take one to three years to relax restrictions on outbound direct investments and three to five years to loosen controls on commercial credits, Sheng suggested.
To build the financial market, the government could in turn open its real estate sector, stock market and bond market in five to 10 years, since it's hard to identify speculation and investment demands on these markets, he said.
China has been partially relaxing its capital account regulations by reforming its exchange rate formation mechanism and pushing for wider use of the yuan in cross-border trade settlement and investment.