Shanghai FTZ to pioneer finance reform, yuan trade

China on Friday issued new guidelines to accelerate building Shanghai into an international financial center, which analysts said marked a substantial step forward for financial reform in the Shanghai Free Trade Zone (FTZ) and the internationalization of renminbi. The new guidelines support the convertibility of yuan capital accounts and encourage more outbound investments by individuals and enterprises, according to a statement published on the website of the People's Bank of China (PBC) on Friday. The guidelines also encouraged expanding the scope of the use of the yuan in foreign countries, and to promote the yuan becoming a wider global currency, according to the statement. "These moves can promote the establishment of an offshore yuan market that can accelerate the internationalization of the currency," Li Xunlei, chief economist at Haitong Securities Company Ltd, told the Global Times on Friday. "China is seeking to make the yuan's international status match China's economic power." Li noted that the reform of the Shanghai FTZ has taken a substantial step forward thanks to the guidelines, amid criticism from the market over a underperforming reform measures. More foreign financial firms Under the guidelines, the financial services sector will further open up to both domestic and overseas markets, covering areas including banks, securities, insurance, funds, futures and equity investments. More types of financial institutions will be able to enter the FTZ due to the relaxed restrictions on their establishment, access conditions and the equity proportion, the Xinhua News Agency reported. For example, foreign financial institutions will be allowed to set up joint-venture securities firms in the FTA, with foreign ownership not exceeding 49 percent. "Another highlight in the new guidelines is the encouragement of the construction of various financial markets," a finance official of the Shanghai government surnamed Zhang told the Global Times on Friday. Lu Zhengwei, a senior economist with the Industrial Bank, said that it is critical for China to establish international finance platforms in multiple fields as the yuan's capital pool is expanding overseas, Xinhua reported. The guidelines said that international financial asset trading platforms will be set up by the China Foreign Exchange Trading System and the Shanghai Stock Exchange, while the Shanghai Futures Exchange will set up an international energy trading center for crude oil futures to go public. China is also mulling launching pilot programs for overseas investment of domestic individuals in the Shanghai FTZ, allowing qualified individuals and institutions to expand investments in stock and futures markets both at home and abroad, according to the guidelines. "This may indicate an upcoming launch of qualified domestic institutional investors, meaning that qualified individuals can set up free trade accounts to directly trade in overseas stock markets," Chen Bo, an expert with the Shanghai University of Finance and Economics, told Xinhua. As the Shanghai FTZ has been undertaking the mission of exploring financial reforms in China since its establishment, successful experience under the new guidelines will be replicated and extended to China's other FTZs, Li noted.