Policy Talking Points - China's Economy
In an effort to gain a better understanding of China's foreign exchange regulations as well as the current state of the renminbi market and the economy,China Forex spoke to Mu Zhiqian,a consultant to SAFE's Balance of Payments Department. The following is an interview with Mr. Mu conducted by Debra Lodge,managing director Global Markets and head of RMB Business Development,North America,at HSBC.
Q: We often find that the implementation of a policy can be different from province to province. Why is this? Could you explain how policy is communicated between the PBOC at the central level and the local branches?
A: For starters,we need to state clearly that when it comes to government policy,we have uniform standards throughout the country. In China,there is no provision for extending better than national treatment - or worse than national treatment. This is a fair market-oriented approach. In practice,however,people often conclude that policy implementation varies from region to region. There are two main reasons for this. On one hand,people have different understandings and interpretations of government regulations. China's legal system is based on regulatory provisions while the British and American legal systems follow legal precedence. In China,people may have different interpretations of a government ruling based on linguistic or other factors and these result in differences in practice. At the same time,there are different levels of development in different regions,and there are differences in trading practices as well types of products and the frequency of use of these products. These all contribute to differences in the application of certain regulations. And yet the standard has already been set in a uniform manner; regardless of whether it is a question of market participants or the regulators themselves,there is no flexibility in these regulations. The process of implementing regulations is also transparent.
Q: We have seen that both the PBOC and SAFE have taken measures to simplify the regulatory approval process in a number of areas. Are any more improvements expected in the near future?
A: It is imperative that we revise and simplify the approval processes in a timely manner in order to maintain a sound economy and a balanced payments position. As Premier Li Keqiang has stated,we have a complete "tool kit" which can be used to deal with changing circumstances.
Q: As of this month,domestic financial institutions and corporates are permitted to borrow offshore without approval from SAFE. What's behind this change and what are the practical implications of this new rule? Have you seen any corporates making use of this new program? Are you considering doing the same for offshore firms borrowing onshore?
A: Once a new government regulation has been drafted,we normally ask for feedback from the market participants,focusing on the convenience and practicality of implementation. There is a wide range of regulatory procedures,including approvals,verifications and registration,and these vary from strict to relatively loose. We put the greatest weight on self-discipline among market participants while using regulatory supervision as a supplement to this. If the market players gain a good reputation they will find they have greater autonomy. The market economy is all about reputation and credibility.
One of the significant measures to achieve capital account liberalization is allowing domestic institutions to borrow from offshore. There is one frequently-used term which is "the last kilometer." In my opinion,"the last kilometer" refers to not only to a timetable,but also addresses quality issues for China's economy,and that includes the ability to control risk.
Q: Are there any updates or a timeline on a reopening of the RMB cross-border cash pool?
A: There is no question of a "reopening." The renminbi cross-border cash pool will not be opened one minute and closed the next minute. China chose a "gradual" path to achieve capital account liberalization and renminbi internationalization. It means keeping pace with the development of the real economy and the nation's balance of payments position. As far as timing is concerned,it will be determined by the market response. The two cash pools,namely a foreign currency cash pool and renminbi cross-border cash pool,these are moving ahead on a trial basis. The two cash pools can be used as references for each other.
Q: China extended the onshore foreign exchange trading hours to 11:30 pm as of this year. Is this the first step towards 24-hour trading for the currency? Is China looking to integrate the onshore and offshore markets at some point in the future?
A: The earth is round and God made it so that some people work while others sleep. Extending the onshore trading hours is actually a response to market demand. Chinese people are well-known for their industriousness,but don't you think it might too difficult for them