China to Let Foreign Banks Trade in ‘People’s Money’
SHANGHAI — In what U.S. officials consider one of the strongest and firmest recent demonstrations of China’s move toward a capitalist economy, the government said Friday that it will allow foreign banks to conduct business in the Chinese currency.
The action, a measure of China’s seemingly insatiable appetite for foreign investment, means U.S. financial institutions and others will be allowed, on a limited basis, to accept deposits and make loans--for home mortgages, car purchases or business investment, for example--in renminbi, the “people’s money†used within China.
In addition, Chinese Finance Minister Liu Zhongli said China will expand the number of cities in which foreign financial institutions will be allowed to operate, beyond the 13 locations now open to them.
The expansion of foreign financial operations was portrayed by the Chinese finance minister as an experiment and by the United States as a major step and a breakthrough in China’s march toward economic modernization.
The Chinese disclosed the measures to U.S. Treasury Secretary Lloyd Bentsen during the first meeting of the U.S.-Chinese Joint Economic Committee since 1987.
The banking decisions will allow foreign financial institutions to increase their business in China, moving from limited operations involved with foreign trade to the commercial operations of banks throughout the industrialized world.
Even more far-reaching, it is expected that the new moves will help streamline the financial operations of foreign companies in China--construction firms and exporters, for example. This should make it easier to make payments in renminbi without having to engage in repeated transactions.
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