China will slow gains in the yuan while speeding up the process of making the currency convertible as it permits mainland investors to buy Hong Kong shares, HSBC Holdings Plc economists Qu Hongbin (
There is at least US$450 billion wanting to go outside of China, HSBC estimates, as the government last month announced a pilot program in Tianjin for individuals to purchase Hong Kong stocks.
The government has been easing restrictions on investors sending money abroad as it tries to counter money coming into the country, which has stoked investment, inflation and economic growth.
"More outflows are likely to ease appreciation pressure and pave the way for meaningful currency flexibility," Hong Kong-based Qu and China-based Ma said in a research note dated last Friday.
"Once expanded the program would effectively make the renminbi convertible in all items except short-term inflows by 2008," the note said.
HSBC, Europe's biggest bank by market value, forecasts the yuan rising 1.7 percent to 7.4 per dollar by the end of this year.
The yuan traded at 7.5239 as of 3pm, the strongest since a decade-long dollar link was scrapped in 2005 to be managed against a basket of currencies.
"Freeing up private portfolio outflows represents a historical step towards the renminbi's full convertibility," Qu and Ma said in the report.
Investors will also be allowed to invest in overseas markets other than Hong Kong by next year, or sooner, they said.
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