China Says Will Control Risks As Yuan Becomes More Convertible

(Reuters) - China will control economic risks as the country pushes reforms to make the yuan convertible on the capital account, the foreign exchange regulator said on Thursday.

"It's viable for China to steadily achieve capital account convertibility, but controlling risks remains the top priority," Wang Yungui, head of policy and regulations for the State Administration of Foreign Exchange (SAFE) told a news conference.

Wang said China has "the last one kilometer" to go before achieving full yuan convertibility, but he did not elaborate.

China has pledged to move towards making the yuan convertible on the capital account, amid hopes that the International Monetary Fund could include the yuan in its special drawing rights (SDR) basket during a five-year review due to be conducted this year.

Central bank governor Zhou Xiaochuan said on Sunday that China will take more steps this year to smooth the way for citizens to invest in overseas financial markets, and reform the Qualified Foreign Institutional Investors (QFII) scheme, which is "not convenient and flexible enough".

While the yuan is already convertible under China's current account, the broadest measure of trade in goods and services, the capital account, which covers portfolio investment and borrowing, is still subject to restrictions due to worries about abrupt capital flight and hot money inflows.

Chinese officials have not given a firm timetable for making the yuan freely tradable, although the central bank has outlined the task of making it "basically" convertible by 2015.

Wang said China had net capital inflows in the first two months of 2015, but no figures were provided.

China has suffered a wave of capital outflows in recent months amid jitters about a protracted economic slowdown in China and expectations for the U.S. Federal Reserve to raise interest rates this year.