RMB is looking likely to become fully convertible within the next five years, after China’s State Council outlined nine key measures to deepen economic reforms, according to HSBC.
With the reforms, China’s State Council has vowed to unveil an operational plan for RMB convertibility in 2013.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
HSBC co-head of Asian Economic Research, Qu Hongbin, said: "The next step in the process of capital account liberalisation will be the expansion of existing QFII, QDII and RQFII programmes, alongside the opening up of individual cross-border investments.
"Following the recent acceleration of QFII, RQFII, and QDII programmes, further growth and a greater variety of investment instruments can be expected in the near future.
"Capital account convertibility and RMB internationalisation will develop further as a number of Chinese cities, including Shanghai, Tianjin and Beijing, are preparing to launch pilot programmes that will allow their residents to invest abroad," Hongbin said.
However, he noted, that getting the onshore financial house in order is a precondition for full convertibility.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataBefore making the RMB convertible, China needs to liberalize interest rates and develop a fully functioning bond market. Interest rate liberalization lies at the heart of China’s financial market reform and is crucial for the development of a fully functioning bond market.
Qu said: "Beijing is already taking steps to speed up the process and we expect further development in the coming years."
According to Qu, the next steps will likely include: expanding the floating band for deposit rates and freeing up deposit rates, reducing the number of categories of lending rates currently and establish deposit insurance scheme.
Qu claimed that when China’s domestic financial house is in order, China’s onshore markets will be ready to become "more open to foreign investors".
