The Chinese tech boomtown of Shenzhen has made a good start in its bid to become a financial center, buoyed by policy blessings from Beijing, which aims to turn it into a “world city.”

The latest measure was to scrap an approval regime to convert foreign currencies into renminbi, so businesses and individuals in the city will face less red tape when they need to exchange foreign hard currency for Chinese yuan at local banks and money changers.

Under the auspices of the People’s Bank of China and State Administration of Foreign Exchange, Shenzhen will become the first mainland city to progressively liberalize the conversion of foreign capital. That said, the special economic zone is still part of the mainland economy cordoned off by Beijing’s rigid capital control aimed at stemming outflows in the form of reinvestment and repatriation.

Xinhua reported that Shenzhen’s foreign exchange authority had streamlined the conversion and yuan purchase process and the time needed to finish a transaction would be slashed from hours in the past – mostly for verifying documents and issuing permits – to only a few minutes. But the pilot program is only applicable to Shenzhen.

Until now Shenzhen, also one of China’s largest exporters, has been hobbled by foreign exchange rules created decades ago. The bourgeoning tech center that is home to Tencent, Huawei, DJI and BYD booked an annual import and export volume of three trillion yuan (US$420 billion) in 2018, up 7% on a year ago.

Containers are stacked on top of one another at Shenzhen’s Yantian Port. The city booked a total trade volume of three trillion yuan in 2018. Photo: Handout

The free conversion of foreign exchange from trade surplus and foreign direct investment into renminbi can further spur the flow of capital and fund investments in the city, helping companies and traders better navigate exchange rate changes via faster transactions.

Observers say if the pilot scheme operates well and is expanded in amount and area, for example, to cover the entire Guangdong province, some foreign companies may skip Hong Kong and pool their money directly in Shenzhen for conversion into renminbi for investment.

But despite this “baby step,” they also say the real deal is for Beijing to allow Shenzhen a gradual relaxation of converting renminbi into foreign currencies and pull down barriers to enable capital outflows, part of reforms in capital account management that Beijing has repeatedly pledged but failed to deliver over the years.

Beijing may also replicate the same policy for a few other key cities, like the free trade zone in Shanghai.

Earlier this month, Beijing unveiled a roadmap to develop Shenzhen into a global model city to showcase the virtues of China’s political and economic systems, and assigned the city of 15 million a new role as an emerging financial hub to complement, if not supplant, part of Hong Kong’s function and accelerate the renminbi’s internationalization.

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