China will continue to liberalize its capital account, but it is
necessary to control the pace at which it is opened, Yi Gang,
assistant governor of the People's Bank of China, told a financial
forum on Friday.
"China will resolutely push for the opening of the capital
account, which is always a set agenda," he was quoted by Bloomberg
as saying. "But we need to control the pace of the opening in an
orderly manner."
Mainland people were allowed on Monday to directly trade stocks
in Hong Kong for the first time under a pilot program started in Tianjin's Binhai New Area.
Tianjin's Binhai New
Area
Analysts expect the program to expand to more cities and
individual investors to be allowed to invest in more international
markets.
"It opened a small window for outbound individual investment,"
said Yi Xianrong, an economist with the Chinese Academy of Social
Sciences. "The window is set to be opened wider."
But Yi Gang warned that managing the capital account could be
difficult because many foreign-exchange inflows are mixed with
money remitted back to China by overseas Chinese.
Yi Gang also said China needs positive real deposit rates,
according to Bloomberg.
His remark has been interpreted as a sign that the monetary
authority may be planning to raise interest rates this year to keep
pace with inflation.
Some international investment banks have predicted that the
central bank would raise the interest rate one more time at most
this year.
It raised the rate on both deposits and lending on Tuesday - the
fourth increase this year - pushing up the one-year savings rate to
3.6 percent and the benchmark lending rate to 7.02 percent.
Although the hikes were aimed at cooling off the country's
blistering economic growth and slowing down fixed-assets investment
and lending, they will also help ease the negative deposit rates,
said Hu Shaowei, a senior economist with the State Information
Center.
Depositors have been suffering from negative real interest rates
since inflation hit 5.6 percent in July, a 10-year record.
"We must prevent real deposit rates from sliding into negative
territory over an extended period," Yi Gang said. "That would
distort and harm the economy."
China should continue to curb excess financial liquidity, boost
domestic consumption, adjust its economic structure and allow
capital outflows in an "orderly" way to prevent economic risks, Yi
Gang said.
(China Daily August 25, 2007)
