CHALLENGES AND SOLUTIONS
China faces two particular challenges in this transforming period - liberalization or openness of capital account and flexibility of the currency, Dehn said.
He explained that as China's consumption is going up, its imports of foreign goods and services will also be pushed up, therefore the current account surplus will be diminishing; and when the currencies in the Western countries are depreciating, Chinese currency is going to appreciate, which will damage its exports further.
In order to have a stable overall balance of payments, China has to open its capital account to finance the falling current account surplus decline or a deficit, Dehn said, cautioning that might lead to market and currency volatilities.
He suggested China attract long-term institutional investors like pension funds, insurance companies, sovereign wealth funds and central banks, because they are large and sophisticated investors that have a long-term view.
"It is quite important to speed up the process of granting the RQFII (Renminbi qualified foreign institutional investor) quotas, and to screen and allocate more quotas to such investors," said Dehn.
He advised China to convert the QFII (Qualified Foreign Institutional Investor) quotas to RQFII, as the later investment vehicle give investors daily dealing and basically free access to the market.
He added that when a market is first opened up, it faces speculators, retail investors, hedge funds and other short-term investors, and that is why China's currency market and stock market saw volatilities over the past few months.
