China tipped to allow daily cross-border capital transfers

China's state council is on the verge of allowing foreign investors to repatriate funds on a daily basis in a significant step towards opening up the country's capital account, according to reports.

Foreign firms invest in Chinese stocks and bonds primarily through a quota system known as the Qualified Foreign Institutional Investor (QFII) scheme. Under the current set-up, however, investors are only allowed to move money in and out of China once a week, making many reluctant to use their quota in full.

Hong Kong Investment Funds Association chairman Bruno Lee Kam-wing told the South China Morning Post that he had learned China's authorities were looking to allow daily transfers and "expected it would happen soon".

"This is definitely good news for the Hong Kong and international fund industry because the current weekly repatriation is too restrictive," Lee told the newspaper.

Less desire to take money out

But Eddie Cheung, an FX strategist at Standard Chartered in Hong Kong, questioned the practical significance of moving from a weekly to a daily transfer arrangement.

"These firms don't usually take money out once they have invested it," he says, citing China's unparalleled growth potential. "It is unlikely to materially impact fund flows or market behaviour."

The reports come a month after People's Bank of China governor Zhou Xiaochuan hinted at significant steps towards opening up the country's capital account this year to speed up RMB internalisation.

"It will be more convenient, not only for enterprises but also for individuals at home and abroad, to invest in the markets," Zhou said during a Beijing panel discussion with International Monetary Fund (IMF) managing director Christine Lagarde on March 22.

China is pushing for the RMB to be included in the IMF's Special Drawing Rights (SDR) currency basket, which is up for review in October.