Beijing's capital account reforms a win for Shanghai

Beijing threw open the capital account for companies and banks based in the Shanghai free-trade zone (FTZ) as a way to reinforce the city's bid to become a global financial centre while the country's official bond clearing house said it will expand a trial on centralised clearing for trading deals to the whole interbank bond market in a pair of significant steps to bolster debt market transactions and reduce trading costs.

The long-awaited liberalisation, 15 months after China launched its first FTZ, was aimed at reducing funding costs for mainland firms, giving foreign capital greater freedom in accessing the Chinese market and setting up the widespread opening of yuan's capital account, according to Zhang Xin, head of the central bank's Shanghai branch.

"The next half year will be a crucial period of time for financial reforms," he said. "Enshrined by the principle of developing Shanghai into an international financial centre, capital account liberalisation should be implemented gradually and entirely."

Zhang said further liberalisation would mark a milestone in the development of the Shanghai FTZ with more steps to be taken in the next six months to boost the city's role as an international financial hub.

Separately, China also took an important step towards creating an international bond market yesterday as the Shanghai Clearing House would expand a trial on centralised clearing for trading deals to the whole interbank bond market.

Under the central party clearing model, deals are cleared by a netting method which handle the transactions under a single and centralised system.