China to promote yuan by easing investment scheme rules

23/04/2015 00:45 AST

China is set to enhance the convertibility of its yuan currency by allowing capital to be taken out on a daily basis from the largest investment scheme open to foreign investors, people with knowledge of the plans said.

This could strengthen the global standing of the yuan and support Beijing’s push to have it included in the International Monetary Fund’s basket of reserve currencies, alongside the dollar, euro, yen and pound.

Currently, foreign asset managers and banks investing in Chinese stocks and bonds through the $150 billion Qualified Foreign Institutional Investor (QFII) programme can only move capital in and out of China on a weekly basis and are therefore restricted in their ability to manage and value funds.

But the changes now being reviewed by China’s chief executive body, the State Council, would make the yuan convertible within the limits of the scheme and allow the cross-border flow of billions of dollars’ worth of investments at a day’s notice.

The reform could also increase the chances of Chinese stocks being represented in global benchmarks such as the MSCI Emerging Market Index.

The daily movement of cash in and out of China is currently allowed under the smaller, yuan-denominated RQFII scheme, which mainly targets a pool of yuan liquidity in offshore centres such as Hong Kong.

One of two sources briefed by Chinese regulators said the plan was to “align the RQFII and QFII schemes by allowing daily liquidity”, adding the change was expected “imminently”. A second source briefed by regulators said the introduction of daily liquidity for QFII was one of several proposals being reviewed by China’s State Council and could be pushed through in a matter of weeks.

Other reforms currently being considered, including lifting an informal $1 billion cap on individual firms’ QFII quotas, could take longer, this person said. The State Council did not respond to requests for comment.

Reuters