China'S Monetary Policy Reform Will Focus On Three Areas.

Liu Linan, senior strategist at Deutsche Bank in Greater China, recently issued a special report, which said that China's financial market had been substantially opened in 2014, and will continue to accelerate the pace of financial reform in the second half of this year and next year.

The report forecasts China's possible financial reform in the next 18 months: deep reform will focus on five aspects: interest rate liberalization, exchange rate liberalization, capital account liberalization, deepening domestic capital market development and RMB internationalization.

The successful implementation of these reforms will greatly enhance China's productivity growth and economic potential in the next few years.

In terms of interest rate liberalization, Deutsche Bank predicts that the central bank will liberalize the interest rate control of financial institutions by the end of 2015, and complete the interest rate reform since July 2013.

The report also predicted that the focus of monetary policy reform in the next two years will focus on three main areas: first, the introduction of short-term policy objectives, namely, 7 day interest rates and overnight interest rates; two, to further develop the money market and government bond market, and to improve the pmission mechanism of monetary policy to construct a more liquid yield and price discovery more effective yield curve and term structure; and three is to optimize the operation effect of the open market through more frequent open market operations and the introduction of convenient liquidity in the inter-bank market.

The report also predicts that China will open up large deposit certificates for individuals and enterprises.

Deutsche Bank predicts that in the next 5 years, the amount of large deposit certificates in the interbank market will increase 10 times to RMB 10-12 trillion yuan.

In terms of foreign exchange reform, the report holds that China will continue to enhance its two-way floating elasticity of RMB exchange rate. It is estimated that the floating rate of RMB spot exchange rate against the US dollar will expand to + 3% in the first half of 2016.

With the gradual opening of the capital account and the completion of the market-oriented interest rate reform, the most critical task facing China's foreign exchange management reform in the next one or two years is how to pition from the existing quantitative / quota management mechanism to the market / price based management mechanism under the macro Prudential framework.

Possible reforms include: 1) introduce price measures to control short-term capital flows (such as financial assets paction fees) and implement interest free deposit reserves; 2) expand the pilot scale of the macro Prudential framework for foreign debt from 3 pilot areas to the whole country.

The way of external debt management has been changed from original quota supervision to enterprise assets and operation performance; 3) opening offshore foreign exchange market to foreign investors and offshore market participants, allowing more foreign exchange derivatives to trade in the market; 4) gradually simplifying the foreign exchange management system, reducing administrative examination and approval, and implementing negative list management system.

In addition, in terms of capital account liberalization,

In the report, China is committed to completing the renminbi's basic convertibility by the end of 2015.

Deutsche Bank expects the following policies are expected to fall: first, Shenzhen Hong Kong Tong is expected to start in the three quarter of this year.

Secondly, through the QFII, RQFII mechanism and the opening of interbank bond market, the overseas expansion is significantly expanded.

The way and share of participating in the domestic fixed income market.

Deutsche Bank expects that in the next 5 years, the proportion of foreign investors holding capital to domestic capital market, including fixed income and stock market, will increase from 3% to 10%, and investment scale control is expected to be abolished in 5 years.

Third, the QDII2.QDII2 has been launched in Guangdong province for nearly two years.

The limit is RMB 20 million yuan.

Deutsche Bank predicts that the QDII2 project is expected to expand to the whole country within this year, and the personal foreign exchange quota will also be raised accordingly.

The fourth, fourth FTA will continue to strengthen the test of capital account convertibility.

The report predicts that this year's FTA reform will focus on cross-border financing of enterprises in the FTA.

Fifth, ease offshore financial institutions' participation in interbank market financing.

Releasing offshore financial institutions to enter the domestic interbank market will help offshore financial institutions better manage the liquidity of RMB and dredge the pmission of domestic monetary policy to offshore RMB market.

Sixth, allowing foreign enterprises to list or issue panda debt in China.

China will gradually open its domestic capital market for financing of multinational enterprises, but considering the current accounting standards and listing conditions in China, it will take 1-2 years to complete the opening up.