China plans to free its deposit rates and ensure its capital account is liberalised on a basic level within three years, an adviser to China's parliament said on Wednesday.

Li Daokui said China aims to inject a basic level of freedom into its tightly controlled capital account within three years, but said it was unclear when capital would be allowed to flow uninhibited across Chinese borders.

Freeing deposit rates and the capital account are two vital financial reforms that China is expected to tackle to remake its economy in what is the most ambitious overhaul in 30 years. China has never disclosed a clear timetable for both reforms.

A former monetary policy adviser to China's central bank, Li is now a delegate at the Chinese People's Political Consultative Conference, a ceremonial advisory body to China's parliament. The group wields no power, but is in the upper echelon of government and privy to the thinking of authorities.

"My understanding is that for the capital account opening, the aim is to have it 'basically' opened within three years," Li told a forum in the northern city of Tianjin. "It is still uncertain when it will be fully opened."

Deposit rates capped

China currently caps the deposit rates that banks pay, partly to protect lenders' margins. But the rule has been criticised by some as distorting the cost of credit by holding down deposit rates and encouraging wasteful investment.

Many economists, including policymakers, believe that China has to open up its capital account if its wishes to increase international usage of the yuan.

Central Bank Governor Zhou Xiaochuan said in March that China would free its deposit rates in one to two years, but one month later, Deputy Governor Yi Gang was quoted by Chinese media as saying Beijing was not ready to let markets set rates.

This is because regional governments can use their political power to force banks to lend to them at discounted rates, and a free-rate market would also inevitably raise borrowing cost at a time when China's economy is already faltering, Yi said.

On the capital account, China has said in the past that it would attain "basic" convertibility by 2015, but researchers at some state think-tanks have since said that 2020 - a deadline that was floated in the past - is more likely.