China to further liberalize capital account

China plans to start a pilot program allowing qualified individuals to invest overseas from Shanghai free-trade zone. Moreover, it is reported by local media that China will kick off so called qualified domestic individual investor (QDII2) programme before the end of this year. Under this policy initiative, Chinese residents with more than CNY1mn of financial assets will be allowed to invest directly overseas. QDII2 will initially be launched in six Chinese cities: Shanghai, Tianjin, Chongqing, Wuhan, Shenzhen and Wenzhou. 

Chinese residents (including both individuals and corporates) bought net USD114.6bn foreign currencies in onshore market in September, after a record high of USD128bn in August (see chart 2). The data suggest that China is experiencing strong capital outflows. The official from FX regulator also acknowledged this fact, but emphasized that this is not a panic capital flight, but reflect Chinese corporates' strategy to diversify its assets globally. In the meantime, the official also said that there is no basis for a large depreciation of CNY. 

"However, an intensive market intervention is seen in both CNY and CNH markets. The Chinese official said that the FX intervention exists in many countries, and the market reactions since "one-off devaluation" are not rational, which triggered the actions from the central bank to manage market expectations", says Commerzbank.