As part of its steady progress in foreign exchange regulatory reforms，China has been moving away from a framework of capital controls and towards capital account convertibility. The country maintained strict capital controls up until the mid-1990s，owing to foreign exchange shortages. But economic reforms created a world-beating accumulation of foreign exchange reserves and that eventually undercut the argument for those restrictive policies. As a result，renminbi convertibility on the capital account has been an objective of foreign exchange reform and that has been the case since December 1996 when China formally accepted the obligations of Article VIII of the Articles of Agreement of the International Monetary Fund (IMF) and made the currency convertible under the current account.  Great progress has been made in this area over the past two decades or so. This article will examine that progression and look ahead to what it means for the future.

Past Progress

China began to adjust its capital controls policy in the early years of the 21st century，driven by the progress in the opening of its economy after the country entered the World Trade Organization. China's "dual surplus" in trade and the financial account had increased rapidly since the mid-1990s，making looser capital controls possible.   

With respect to direct investment，measures were taken to facilitate both inbound foreign direct investment (FDI) and outbound overseas direct investment (ODI). Since 2002，there has been wider access to the domestic market for foreign investors and investment has been made simpler.  That included the examination and approval process，as well as foreign exchange settlement related to capital inflows from direct investment. Some restrictions were removed on mergers and acquisitions involving domestic enterprises in certain industries. Additionally，foreign investors were allowed to become strategic partners of domestically listed companies. For outbound investment，Chinese enterprises saw an easing of restrictions on foreign currency purchases and many formalities were simplified.