Tags: china | foreign | investment | limit | stock | bond | markets

China Scraps Foreign Investment Limit in Stock, Bond Markets

China Scraps Foreign Investment Limit in Stock, Bond Markets

Tuesday, 10 September 2019 08:24 AM

China removed one more hurdle for foreign investment into its capital markets almost 20 years after it first allowed access.

Global funds no longer need approvals to purchase quotas to buy Chinese stocks and bonds, the State Administration of Foreign Exchange said in a statement on Tuesday. It removed the $300 billion overall cap on overseas purchases of the assets, about two-thirds of which remain unused.

It’s the latest push by Chinese authorities to increase use of the yuan in international transactions, and comes as they seek out more foreign capital to balance payments. Scrapping the investment quota is also another step in policy makers’ efforts to open up China’s financial system to the world.

It’s unclear how much fresh investment the latest moves will attract into China’s $13 trillion bond and $6.9 trillion equity markets, given that foreign investors had only used $111 billion of the $300 billion quota available to them through Aug. 30. There are also alternate routes of investment, including trading links with Hong Kong Exchanges & Clearing Ltd., that allow offshore money managers to trade stocks and bonds in China via the former British colony.

“The move is more symbolic and won’t trigger significant capital inflows,” said Ding Shuang, chief China and North Asia economist at Standard Chartered Bank Ltd. “But it’s a good gesture for the officials to make, as the 70th anniversary of the People’s Republic of China’s founding is approaching and there’s a lack of positive development in the trade talks with the U.S.”

Foreign investors held 2 trillion yuan of Chinese bonds and 1.6 trillion yuan of stocks onshore at the end of June, according to central bank data. FTSE China A50 futures rose as much as 0.6% in Singapore on the scrapping of the limit.

The process of granting overseas investors similar ease of access as local players started in 2000, when China was negotiating entry into the World Trade Organization. It picked up pace last year after U.S. President Donald Trump attacked China as a one-sided beneficiary of global commerce.

China began easing rules last year, when it removed lock-in periods and allowed investors who used the quotas to repatriate their money at any time. There had previously been limits on the amount foreigners could take out of the country in one go.

Separately, the country has allowed foreign banks and insurers to take controlling stakes in their local ventures. UBS Group AG, JPMorgan Chase & Co. and Nomura Holdings Inc. have all won approval for majority control of their local securities joint ventures, while Goldman Sachs Group Inc. and DBS Group Holdings Ltd. have applications pending.

Under the changes to the Qualified Foreign Institutional Investors and Renminbi Qualified Foreign Institutional Investors programs, foreigners need only to register before investing in Chinese securities, a move that will “make China’s bond and equity markets better and more widely accepted by international markets,” according to SAFE’s statement.

The regulator also reaffirmed its determination to further the open market and make cross-border financing easier.

“It is a gesture, trying to reduce red tape and reinforcing the message that they are continuing to open the Chinese capital markets,” said Gerry Alfonso, director of international business department at Shenwan Hongyuan Group Co. “It probably does not have a massive short term impact on stocks, but overall it is a good development.”

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China removed one more hurdle for foreign investment into its capital markets almost 20 years after it first allowed access.
china, foreign, investment, limit, stock, bond, markets
Tuesday, 10 September 2019 08:24 AM
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