China pledges to increase exchange rate flexibility

FDI outflows are expected to continue to grow in coming years on looser regulations in the financial sector on foreign investments eg possible expansion of the QDII2 scheme and big-ticket infrastructure initiatives such as "One Road One Belt" and via the AIIB.

The US Treasury Department said yesterday that "China committed to increase exchange rate flexibility and move more rapidly toward a market-oriented exchange rate system. China pledged for the first time to intervene in foreign exchange markets only when necessitated by disorderly market conditions. China will consider more steps toward market-oriented FX rate and to increase FX flexibility."

This was at the conclusion of the Strategic and Economic Dialogue between the US and China. US Treasury Secretary Jack Lew added that China is committed to financial reforms "including taking the final steps in liberalizing interest rates, opening capital markets, and expanding access to foreign financial services firms and investors. The real test will be what China does when there's pressure on the yuan to strengthen." 

China's Vice Finance Minister Zhu Guangyao said that China has made a large amount of progress on CNY liberalization and reforms are still moving forward. He added that CNY is at a reasonable and balanced level.