China must open up capital account at right pace: ADB

September 23, 2015 10:06
China must proceed carefully on capital account liberalization, says ADB chief economist Wei Shangjin. Photo: HKEJ

Asian Development Bank (ADB) has warned China of potential issues that may arise if the nation's capital account is opened up at too rapid a pace, given the backdrop of a weakening renminbi and the expected resumption of an interest rate hike cycle in the United States.

The bank's chief economist Wei Shangjin (魏尚進) also said Tuesday that restrictions on mainland enterprises in relation to offshore borrowings should not be eased too soon, the Hong Kong Economic Journal reported. 

Although the overall debt level of Chinese enterprises is not that high at the moment, it is on the uptrend and deserves attention, Wei said.

However, he added that the impact of capital outflow on China would not be as serious as on other emerging markets such as India and Indonesia which host more portfolio capital rather than foreign direct investments.

In other comments, the economist urged the Chinese government to allow more market forces in its foreign exchange market, pointing out that the move will be good for the export sector in the region.

The ADB has lowered its growth forecast for the Chinese economy for this year to 6.8 percent from a previous estimate of 7.2 percent. As for 2016, the projection has been trimmed to 6.7 percent from 7.0 percent.

The estimates on Hong Kong were adjusted to 2.4 percent from 2.8 percent for this year, and to 2.7 percent from 2.9 percent for 2016.

[Chinese version中文版]

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Hong Kong Economic Journal