SHANGHAI (Reuters) - The willingness of overseas investors to hold yuan-denominated assets is rising fast and the authorities plan to further increase the Chinese currency’s flexibility, China’s foreign exchange regulator Pan Gongsheng said on Thursday.
The yuan CNY=CFXS exchange rate will continue to be basically stable at a reasonable and balanced level, Pan reiterated, adding that the government will improve the yuan fixing mechanism.
“The yuan midpoint fixing will be more rule-based, transparent and market-oriented, and market forces will be allowed to play a bigger role in deciding the yuan’s exchange rate,” Pan told a financial forum in Shanghai.
He added that the regulator will also steadily push forward capital account convertibility and fend off systemic risks.
Pan’s remarks came after an easing of restrictions on foreign fund manager outflows from China earlier this week, with bankers and consultants saying the move will give overseas investors more comfort investing in the mainland.
And foreign investors have been steadily raising holdings of Chinese bonds, boosting the proportion of Chinese bonds held by offshore institutions to an all-time high.
Pan urged domestic companies to conduct more hedging activity against the backdrop of higher volatility. The regulator is also studying ways to allow Chinese institutions to participate in the offshore yuan market.
The regulator will improve the macro-prudential regulatory framework for cross-border capital flows, he added.
Offshore institutions held a total of 1.44 trillion yuan ($225.2 billion) worth of interbank bonds at the end of May, which was the 15th consecutive month of expansion, data from the country’s two primary bond clearing houses showed. They held 6.7 percent of outstanding government bonds at the end of last month.
Reporting by Samuel Shen and John Ruwitch; Writing by Winni Zhou; Editing by Jacqueline Wong