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Finance & Economy

China opens door further to foreign stock investors


An investor reads information displayed on an electronic screen at a brokerage house in Shanghai

An investor reads information displayed on an electronic screen at a brokerage house in Shanghai

China has relaxed rules to allow more foreign participation in its main stock market, in the latest step towards liberalising the financial system in the world’s second-largest economy.

From Thursday, foreign investors on the Shanghai stock exchange will be allowed to invest in more products and can invest up to 30 percent in a single company, up from 20 percent previously.

The move comes just days after the People’s Bank of China, the central bank, doubled the daily trading band of its currency, and after it earlier this month provided an explicit timeframe for the liberalisation of the country’s deposit rates.

The country’s stock markets showed muted reaction to the latest change on Thursday but analysts said it highlighted the overall direction of the reforms.

“We’re at the point where developments of this kind represent important forward steps,” said Tom Gatley, a senior analyst at GaveKal Dragonomics in Beijing.

With immediate effect, the exchange raised the shareholding limit for Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) in a single company to 30 percent from 20 percent, according to new rules by the exchange published on its website late on Wednesday.

The QFII and RQFII schemes are the main channels of foreign investments in China’s stock markets. As of end-February, China had issued total quotas of $52.3 billion under the QFII program and 180.4 billion yuan ($29 billion) under the RQFII program, which allows investments using offshore yuan.

The Shanghai bourse also said foreign investors would now be permitted to trade asset-backed securities, when-issued debt and bonds issued by Chinese policy banks for the first time. They can now also participate in the preferred share program, which is expected to be launched soon, it said.

“The move comes at a time when China’s stock market is quite weak and regulators hope to attract more foreign investment,” said Zheng Weigang, a senior trader at Shanghai Securities.

“However, compared with China’s large capitalised stock market, the overall amount of QFII and RQFII investment accounts for only a limited portion, so the impact of the new rules may be limited.

“Besides, because of lacklustre growth of China’s economy in recent quarters, foreigners’ interest in China’s stock market is also not that strong, and that will also limit the impact of the new rules.”

The CSI300 index of top Chinese companies on the Shanghai and Shenzhen stock exchanges was up 0.3 percent on Thursday while the Shanghai Composite Index was up 0.4 percent.

YUAN, INTEREST RATE REFORM

On Saturday, the PBOC widened the daily trading range for the yuan, which analysts said suggested regulators believe the economy is stable enough to handle more promised reforms going forward.

The PBOC’s governor said earlier in the month that the country’s deposit rates are likely to be liberalized in one to two years – the most explicit timeframe to date for what would be the final step in freeing up banks to set their own interest rates.

On capital market reforms, China has been widening channels for investors buying mainland stocks, bonds and money market instruments.

Last year, China doubled the overall quota of the QFII scheme to $150 billion and said it would expand the RQFII pilot program to London, Singapore, Taiwan and other unnamed locations. The RQFII scheme is currently available through designated institutions in Hong Kong.

However, foreign interest in Chinese equities has been tempered in recent years by concerns that onshore markets are driven primarily by speculation on policy direction and stimulus spending instead of business and economic fundamentals.

Investors also cite corporate governance issues as a problem. Analysts say a lack of clarity about how Beijing will tax profits from QFII investments has also restrained more conservative investors.

China is aiming to transform its commercial centre Shanghai into a global financial hub on par with the likes of London and Singapore by 2020 but analysts say there is still a long way to go.

“If you want people to take you seriously as a financial centre, then you have to allow non-Chinese people to participate in the whole range of capital instruments,” Gatley said.

“There are other things substantially more important for making Shanghai a credible financial hub, notably capital account convertibility. That’s the major one.”

Source: Reuters “China opens door further to foreign stock investors”
 
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About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee

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