Lifting controls on outbound individual investments can help accelerate financial reforms in China, says an article in the 21st Century Business Herald. Excerpts:

National Development and Reform Commission, China’s main economic planner, says it will expedite the drafting of overseas investment rules, which will allow individual investors to invest abroad.

Allowing individuals to invest abroad is a key step forward for the free convertibility of yuan’s capital accounts, something the Chinese government is moving toward with gradual steps. 

But the current $50,000 ceiling limit for individual investors is far from enough to meet the rising demands of Chinese people’s investing in foreign countries. Due to the restrictions, some of the individual investors seek illegal ways to wire their money abroad.

Some analysts think yuan’s free convertibility can cause large inflows of foreign capitals, a threat for the security of China’s financial system.

In fact, even before the official lifting of the control, illegal income of officials and untaxed profits of businessmen are constantly moved abroad in the absence of effective supervision.

The rigid control on investments means Chinese nationals can only invest in domestic financial market, and cannot make a good use of the global market, aggravating the tensions in the financial market that is still under strict control of the government.

Lifting restrictions on individual investors can let Chinese nationals allocate their assets in the global market to disperse the risks of their capital portfolio and increase return on investment.

A more mature financial market in the developed countries can force the domestic financial market to improve its pricing ability for the risky assets, efficiency of resource allocation and form a fair market order as soon as possible.