China is considering relaxing limits to allow individuals to invest overseas in stocks and property, the People’s Bank of China (PBOC) said on Friday, which would potentially unleash a flood of money if the government loosens strict capital controls.
The country keeps a tight grip on outflows of funds due to worries capital flight could disrupt the economy and weaken its control.
The central bank said it was studying letting “qualified” individuals invest abroad in industry, property and financial products through the Shanghai Free Trade Zone, according to a statement released by the bank.
“These policy initiatives are another important step toward complete capital account liberalization,” Zhou Hao (周浩), a senior economist at Commerzbank AG in Singapore, was quoted by Bloomberg News as saying.
China’s premier free-trade zone in Shanghai was set up in 2013 with the promise of a range of financial reforms, but foreign investors have expressed disappointment over the pace of change.
Chinese citizens are now only allowed to convert the equivalent of US$50,000 from the domestic yuan currency under an annual quota, state media said, which creates a limit on overseas investment though many evade the barrier.
Individuals are allowed to legally invest in stocks in Hong Kong, a special administrative region of China, through a special link with accounts on the Shanghai Stock Exchange.
The central bank announcement, which gave no timetable for the move, followed a top-level Chinese Communist Party meeting which discussed the country’s development plans for the next five years.
China also wants the yuan to join the IMF’s “special drawing rights” basket of currencies and is pursuing reforms to help gain the coveted status.
In August, the central bank suddenly devalued the yuan, allowing it to lose nearly 5 percent of its value over a week, in a move which raised alarm over the state of the world’s second-largest economy.
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