Flood of foreign capital to inundate Chinese banks?

Will occur within three years.

Agricultural Bank of China, one of China’s “Big Four” state-owned banks, predicts moves by China to liberalize its deposit rates and capital account will open the door to a flood of foreign capital.

China will have liberalized deposit rates within two years and have a fully convertible capital account a year later, said AgBank. Beijing’s determination to go ahead with aggressive financial reform to create a 21st century economy will also contribute to this outcome.

Xiang Songzuo, AgBank chief economist, said China needs to cut its reliance on the formal banking system and create a full-service financial sector that has healthy debt market capabilities, private equity funds, even funds designed explicitly to support small and medium-sized enterprises.

He said China could only reform the financial sector by making hard decisions. He also believes the creation of a fully global renminbi will take longer than expected.

He noted that China is determined to turn the renminbi into a leading currency, and in particular a leading trade-settlement currency.