Stepping stones to freely traded renminbi

Just a year and a half after opening its first free trade zone in Shanghai, China is now liberalizing its offshore borrowing for firms registered there. The China (Shanghai) Pilot Free Trade Zone was originally billed as a three-year trial, but China is forging ahead, and will expand Shanghai and launch three new zones in Tianjin in northern China, Fujian in the southeast and Guangdong in the south in the near future.

While not the sole conduit for reform in China, the trade zone plan is crucial to the prospects of a fully convertible renminbi, and the speed at which China is rolling out the plan is surprising many observers.

The announcement on Feb 12 that offshore borrowing for firms in the Shanghai free trade zone will be relaxed further - and that the new regulation will include banks - is a significant breakthrough and suggests China is committed to achieving full convertibility of the renminbi.