China Aims to Loosen Control of Yuan

China will propose a plan this year for allowing yuan capital-account convertibility as part of measures to loosen control over its currency and interest rates, the nation’s Cabinet said.

The yuan plan will also include creating a mechanism that allows investments overseas by individuals, the State Council said in a statement yesterday after a meeting led by Premier Li Keqiang on the focus of economic reforms in 2013. Other measures include improving controls on risks from local government debt, expanding trials of value-added taxes on companies and pushing forward changes to the country’s household-registration system.

Li in March pledged to open the economy to more market forces and strip power from the government as part of efforts to restructure growth. China needs to sacrifice short-term economic growth for structural adjustments, central bank Governor Zhou Xiaochuan said last month after the nation reported slower-than- forecast first-quarter expansion.

“It’s a positive sign that the new government under Li Keqiang is trying to boost growth by reform instead of launching fiscal stimulus,” Shen Jianguang, chief economist at Mizuho Securities Asia Ltd. in Hong Kong, said by telephone. The goal of a feasible plan for capital-account convertibility shows that the “reform ideas promoted by Zhou Xiaochuan have received endorsement from the cabinet.”

The State Council statement didn’t give additional details on the capital-account plan.

A March statement by the State Council also said the nation would roll out measures to promote interest-rate and exchange- rate liberalization this year. That statement didn’t mention a plan for capital-account convertibility.

Bloomberg

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