In January 2013, the central bank announced it is preparing for the Qualified Domestic Individual Investors (QDII2) program, but little progress has been made.

The monetary authority stresses risk control. One of the reasons for the slow progress in the yuan's free capital account convertibility is macroeconomic risk concerns. The PBC once said China will adopt a managed convertibility. After the yuan becomes fully convertible, the central bank will continue to manage transactions under the capital account, including controlling cross-border capital flow risks through macro-prudential measures, and maintaining exchange rate stability and financial security. The central bank has left room to reform the QDII2 to avoid the possible damage that excessively radical reform measures may cause to financial stability.

Wang Xiaoyi, Deputy Administrator of the State Administration of Foreign Exchange (SAFE), said at a press conference on October 22

that China will press ahead, step by step, with the process of setting up the yuan's free capital account convertibility in order to ensure the risks are under control. According to Wang, economic growth fluctuations will not impact China's efforts to improve the yuan's free capital account convertibility. With no current timetable for the QDII2, China will further open up the capital account.

In response to a question about exchange rate intervention by the central bank, Wang said intervention in the foreign exchange market is made by all central banks in the world, and SAFE's examination of abnormal corporate behavior should not be classified as an intervention. He added that the capital outflows from China are reducing, and SAFE is considering forex transaction tax to curb speculations through large, short-term cross-border capital flows.

Against the backdrop of the economic slowdown and the reforming and opening up of the financial industry, China has to meet different demands for financial opening up. This has caused some contradictions in financial policies and increased uncertainties in the future financial market. However, this does not mean China will not go further with financial reform.

China has become a net capital exporter, which will facilitate the yuan's internationalization. Currently the progress of yuan's internationalization in foreign markets is faster than that within the country. China must unswervingly push forward with the opening up of the capital account and become more deeply involved in economic globalization.

This is an edited excerpt of an article written by financial commmentator Zhou Zixun and published in National Business Daily