China to allow free yuan exchange in Shanghai zone

September 5, 2013 9:40 am
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China will allow unfettered exchange of its yuan currency in its first free trade zone, a draft plan seen by AFP Thursday showed, in a push to reform the world's second largest economy/AFP
China will allow unfettered exchange of its yuan currency in its first free trade zone, a draft plan seen by AFP Thursday showed, in a push to reform the world’s second largest economy/AFP

, SHANGHAI September 4- China will allow unfettered exchange of its yuan currency in its first free trade zone, a draft plan seen by AFP on Thursday showed, in a bold push to reform the world’s second largest economy.

The free trade zone (FTZ) in Shanghai is intended to make the city into a true international trade and financial centre and challenge the free economy of Hong Kong, a special administrative region of China, analysts and government officials said.

Premier Li Keqiang, who took office in March, is backing the zone which his cabinet approved last month to be one of the crowning achievements of his administration, they said.

The draft plan seen by AFP showed the FTZ goes beyond greater liberalisation of trade to take in investment and financial services including free convertibility of currency.

“Under the pre condition that risk can be controlled, in the zone convertibility of the renminbi on the capital account will be conducted, the first to carry out and test (it),” the plan said.

It does not explicitly state that the exchange rate will be purely market set.

China’s yuan currency, also known as the renminbi, is convertible for trade but the government keeps a tight grip on the capital account on worries unpredictable inflows or outflows could harm the economy and reduce its control over it.

A government official familiar with the plans said companies registered in the FTZ could open special accounts to freely exchange yuan, but with only a few exceptions they would be required to close their onshore Chinese accounts.

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