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Ma Jun, the chief economist at the central
bank's research bureau, told a forum that China's net capital
flows may not be as big as some expect once the country frees
its closed capital account.
However, he said capital inflows into China’s bond market could
increase as domestic bond yields are higher relative to overseas
markets. This provides an arbitrage opportunity for investors
compared with the yuan, which has limited scope to move.
Ma also said that as China's capital account is already
partially open, there could be "a substantial increase" in
outbound foreign direct investment (FDI) if China further
loosens its grip on capital flows.
"China needs to further increase the yuan's flexibility," said
Ma, a former chief China economist at Deutsche Bank who joined
the PBOC in April. Even though China in theory has a closed
capital account, speculators can still sneak their cash into the
world's second-largest economy through a variety of channels,
such as disguising their money as export revenue.
Persistent weakness in the yuan <CNY=CFXS> early this has led
some analysts to conclude that Chinese authorities were
attempting to reduce hot money inflows by engineering a fall in
the currency to rattle speculators.
As part of its ambitions to turn the yuan into a global
currency, China plans to free up its capital account though
authorities have said some restrictions will be kept in place.
(Reporting by Kevin Yao; Editing by Richard Borsuk)
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