A Study On The Legal Issues Of Convertibility Of Renminbi Capital

As RMB is gradually internationalised and the global control over China oncapital accounts becomes loose, it is increasingly required to make the RMBconvertible under capital accounts. Accordingly, the Government announced a pieceof decision named “speed up the convertibility of RMB under capital accounts” andallocated Shanghai Free Trade Zone (SFTZ) to implement the trial for the conversion.Although, based on the international experience, capital account convertibility cantruly enhance the efficiency of finance and promote the development of economy.However, it is also financially risky because of the cross border movements of largeamounts of capital. The conversion in SFTZ, in specific, which is just taking off, isconcerned on the lack of relevant laws and supervising articles. Therefore, this essayis going to organise relating acts and regulations on the issue of convertibility of RMBunder capital accounts in SFTZ and to analyse the problems and difficulties at thepresent stage for the purpose of providing some corresponding suggestions forperfection. The essay will be divided into five chapters.Chapter one is the overview of the capital conversion, including the definition ofcapital accounts convertibility, the relevant provisions of the IMF as well as thehistory and current situation of capital accounts convertibility in China.Chapter two focuses on collecting and analysing the internal articles and laws onthe convertibility of RMB under capital accounts from three aspects, direct investmentcapital, portfolio investment capital and other kinds of investment capital.More specific, chapter three introduces present rules in SFTZ on the issue ofconvertibility. The rules are separately illustrated, namely, integrated regulation,direct investment, portfolio investment and others, which are also anlysed bycomparing with the current general rule.In chapter four, it is demonstrated that the trial in SFTZ is faced with variesbarriers and difficulties, which contain four main factors,(1) the unintelligibility ofrelevant regulations;(2) the probability of the conflicts between the specific rules ofSFTZ and the higher-level laws;(3) the increasing difficulty in supervision upon thecross border flows of capital; and (4) other legal concerns.In terms of the suggestions of the convertibility of RMB under capital accountsin SFTZ, chapter five provides that it is advisable to introduce detailed terms oncapital accounts convertibility, to complete the supervising regulation on cross bordermovements of capital, to establish coordination mechanism for financial regulationand emergency mechanism for financial risk.