Future Developments

Hai Xin

6.1 INTRODUCTION

Given the raft of reform measures implemented after June 2010 – discussed in Chapter 2, Section 2.5, and also various other sections – it is clear that the Chinese government is determined to push forward the necessary changes to liberalise its capital account and substantially change the way the renminbi exchange rate is set within a reasonable timeframe. As the renminbi system is deeply intertwined with many other areas in finance and the real economy, the reforms need to be multi-pronged. As discussed in Chapter 1, Section 1.12, significant reforms in the following areas need to be coordinated:

• • internationalising renminbi and developing a liquid offshore renminbi market;

• • liberalising China’s capital account;

• • deregulating the onshore foreign-exchange market and reforming the renminbi exchange-rate mechanism; and

• • liberalising the domestic interest-rate-setting mechanism, reforming the domestic bond and money market.

Naturally, some of the manifest imbalances in the renminbi exchange rate can be traced to other deep-rooted causes in the real economy. Structural reforms need to be carried out in