23 September 2018
Chinese Yuan Bank Note Images

The Big Picture: WIDER RMB BAND

China will “basically” stop normal intervention in the foreign exchange market, central bank governor Zhou Xiaochuan {周小川} was quoted as saying in a published commentary. To enhance the renminbi’s two-way flexibility, the country will widen the currency’s trading band in an “orderly” way, Zhou said in a book elaborating on the nation’s financial reforms.

In the book, which came after the recent plenum of the Communist Party’s 18th Central Committee, Zhou did not give a timeframe for the planned reform, Bloomberg News reported Tuesday.

In other comments, Zhou said authorities will continue to increase the quotas under the Qualified Domestic Institutional Investor (QDII) and Qualified Foreign Institutional Investor (QFII) programs and will eventually remove the quotas.

Zhou’s comments on having a wider trading band for the Chinese currency signal a faster pace of the formation of a market-driven exchange rate mechanism, observers say.

It is also a good time for the reform as the United States may not taper its quantitative easing measures in the short term. Incoming Federal Reserve chairwoman Jane Yellen said last week that she will maintain the Fed’s monetary stimulus until she sees a robust economic recovery. That means the chance for renminbi depreciation will remain low. 

In fact, the PBoC does not want forex intervention as it will create an extra financial cost for the nation. In May, the renminbi’s central parity rate was moving higher with daily fluctuations hitting the one percent limit several times in the foreign exchange spot market. The State Administration of Foreign Exchange is believed to have intervened in the forex market to stabilize the renminbi. 

If the trading band is widened, for example from one percent to two percent, the chance for the spot renminbi to hit the ceiling or floor will decrease, observers say. However, such move will still not be enough to create a market-driven exchange rate system as the country has yet to open its capital account.

Govt to ease market access for foreigners

China will ease market access for foreigners in a number of service and manufacturing industries, information provider reported Tuesday, citing commerce ministry spokesperson Shen Danyang. These include childcare, architectural design, accounting, steel and auto manufacturing, logistics and e-commerce. The ministry will unify regulations for domestic and foreign companies and keep its foreign investment policy stable, transparent and predictable. Also, it will encourage international firms to set up headquarters, research facilities and purchase centers in China. 

OECD sees China 2014 growth at 8.2%

The Organization for Economic Cooperation and Development (OECD) expects China’s economic growth to accelerate to 8.2 percent next year from an estimated 7.7 percent this year, along with lower inflation, the Hong Kong Economic Journal reported Tuesday. The consumer price index is seen averaging 2.4 percent in 2014, down from 2.5 percent this year, while the ratio of the current account surplus to gross domestic product is expected to fall to 1.5 percent from 2.3 percent.

– Contact HKEJ at [email protected]



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