China may soon allow emigrants to take certain assets out of the country, under a plan currently awaiting approval by the State Council, China's cabinet.
There are concerns that the ensuing capital outflows may be bigger than regulators expect, but top foreign exchange official Guo Shuqing confidently stated that a "fairly mature" scheme was in place to implement the change.
The Beijing Youth Daily quoted State Administration of Foreign Exchange (SAFE) Director Guo as saying that the scheme will cover both assets owned by Chinese emigrants and those inherited in the country by non-residents, which largely means foreigners.
The plan is expected to allow emigrants to sell such assets as real estate and convert the renminbi proceeds into foreign currency, which is currently prohibited.
But sources said it will be difficult to guarantee that no assets from other sources, especially financial assets, are combined with the permissible assets and moved overseas.
The total of such assets are estimated to be less than US$2 billion, he said.
Guo also said the scheme does not cover investment-based emigration.
Yi Xianrong, an economist with the Chinese Academy of Social Sciences, said the move is part of the Chinese authorities' efforts to liberalize the capital account and alleviate the upward pressure on the renminbi exchange rate.
Among other similar policies being considered, the SAFE said earlier it has plans to allow domestic investors to invest in overseas markets through so-called qualified domestic institutional investors (QDIIs), and approve foreign institutions to issue renminbi-denominated bonds in the local markets.
The local currency is fully convertible under the current account, but only partially convertible under the capital account.
China has been cautious in liberalizing the capital account, an area where imprudent opening has led to disasters in some countries. But the International Monetary Fund urged the Chinese government more than a year ago to step up its pace and take advantage of its favorable economic conditions.
The Chinese economy has been enjoying fast growth in the past few years, and hefty current and capital account surpluses increased its foreign exchange reserves, a key weapon in times of financial crisis, to US$403.3 billion at the end of last year. China follows only Japan in forex reserves.
As they have soothed regulators' long-standing worries about a reserve shortage, the rapid increases in foreign exchange reserves have also put increasing upward pressure on the local currency, and fueled a credit expansion last year.
In the past three years, the SAFE has been largely loosening restrictions on capital outflows, encouraging legitimate use of foreign exchange, and has been keeping a closer eye on the inflow of capital, particularly short-term capital.
The estimated US$2 billion of asset transfers will presumably have little impact on China's foreign exchange reserves, but analysts said efforts should be made to prevent ill-gotten assets, like proceeds from criminal activities and those by corrupt officials, from being moved abroad under the disguise of emigrants' assets.
But such large-scale outflows are currently unlikely given the high expectations that the local currency will appreciate.
Guo also said over the weekend that conditions are not currently ripe in Hong Kong for the special administrative region to become an offshore center for renminbi business. He stressed that the personal renminbi services Hong Kong banks started to offer last month should not be equated with the SAR becoming a renminbi offshore center.
(China Daily March 8, 2004)
