China: Zhou Xiaochuan calls for urgent easing of capital controls

  • China’s outgoing central bank governor has called for an urgent return to his stalled capital account reforms, warning his country’s leaders that the opportunity to further open the economy “must be seized”.
  • Reformist officials are hoping Mr Xi will use next week’s congress to prioritise a series of financial and economic reforms they feel have been neglected as the president focused instead on his anti-corruption campaign and a revamp of China’s military.
  • For most of his term, Mr Zhou championed financial liberalisation as China emerged as the world’s largest trading nation and its economy boomed. His efforts were recognised in Oct 16, when the International Monetary Fund formally designated the renminbi as an official reserve currency alongside the dollar, euro, yen and pound sterling.
  • But, spooked by steady capital outflows, which have reduced China’s foreign exchange holdings from USD4tr to USD3tr, Mr Xi’s administration ordered stricter reviews of outbound investments and overseas transactions by state-owned enterprises, private sector companies and individuals.
  • China’s forex holdings have since stabilised and helped reverse the renminbi’s almost three-year slide against the dollar. This has given Mr Zhou and his reformist colleagues an opportunity to argue for a relaxation of the capital controls.

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