China allows direct offshore investments
China allows direct offshore investments
By Jamil Anderlini in Beijing
Copyright The Financial Times Limited 2007
Published: August 21 2007 03:00 | Last updated: August 21 2007 03:00
China's capital markets on Monday took a significant step towards integration with the rest of the world when Beijing announced it would allow individuals directly to buy securities offshore for the first time.
Investors will be able to open accounts at Bank of China branches across the country to trade securities listed in Hong Kong, whose markets, unlike the mainland's, are integrated with the global economy.
China's State Administration of Foreign Exchange (Safe) also said these investments, under a pilot scheme awaiting final approval, would be exempt from a $50,000 (€37,000, £25,000) limit on the amount of foreign currency Chinese citizens could buy or sell every year.
It said it hoped this opening of the capital account would relieve upward pressure on the renminbi while giving citizens more investment options. "This is an important action for widening the channels for foreign exchange to leave the country and promoting basic equilibrium in the international balance of payments," Safe said.
China's huge and growing trade surplus creates pressure on its currency to appreciate, but the government operates a managed exchange rate regime to prevent the renminbi from rising too quickly and hurting exporters.
While the change will enable Chinese citizens to invest directly in all Hong Kong traded securities, investors are expected to focus on Chinese companies, which trade at an average 50 per cent discount to the mainland.
With no restrictions on the amount of foreign currency individuals can buy to invest, Hong Kong's H-share index, which covers mainland Chinese companies listed in the territory, rose almost 9 per cent yesterday to 11,964 points.
"The impact of Chinese money on the Hong Kong market could increase dramatically," said Vincent Chan, an analyst with Credit Suisse in Hong Kong. "It will fundamentally change the dynamics of the Hong Kong market if this policy is adopted fully."
Although China has had a stock market since 1990, its infrastructure has trailed that of the western world in a number of ways, including the maintenance of curbs on investors owning shares overseas and on foreigners buying domestic stocks. Encouraging funds to flow offshore will alleviate some of the pressure.
"Markets are still not fully fungible because foreigners can't invest directly in the Chinese market and there is no mechanism for shorting stocks [trading in borrowed securities], but these new rules are a big step towards that goal," said Jerry Lou, equity strategist at Morgan Stanley.
Chinese individuals were recently allowed to invest in foreign securities indirectly, through structured products offered by large banks, insurers and fund managers which are themselves constrained by what they can invest in.
Once it secures final approval from the China Banking Regulatory Commission, the programme is due to be expanded toother banks and offshore markets.
Initially, however, investors will have to invest through Bank of China, which must conduct all trades through its branch in the northern city of Tianjin's Binhai special economic zone, which enjoys particular favour with the central government.
By Jamil Anderlini in Beijing
Copyright The Financial Times Limited 2007
Published: August 21 2007 03:00 | Last updated: August 21 2007 03:00
China's capital markets on Monday took a significant step towards integration with the rest of the world when Beijing announced it would allow individuals directly to buy securities offshore for the first time.
Investors will be able to open accounts at Bank of China branches across the country to trade securities listed in Hong Kong, whose markets, unlike the mainland's, are integrated with the global economy.
China's State Administration of Foreign Exchange (Safe) also said these investments, under a pilot scheme awaiting final approval, would be exempt from a $50,000 (€37,000, £25,000) limit on the amount of foreign currency Chinese citizens could buy or sell every year.
It said it hoped this opening of the capital account would relieve upward pressure on the renminbi while giving citizens more investment options. "This is an important action for widening the channels for foreign exchange to leave the country and promoting basic equilibrium in the international balance of payments," Safe said.
China's huge and growing trade surplus creates pressure on its currency to appreciate, but the government operates a managed exchange rate regime to prevent the renminbi from rising too quickly and hurting exporters.
While the change will enable Chinese citizens to invest directly in all Hong Kong traded securities, investors are expected to focus on Chinese companies, which trade at an average 50 per cent discount to the mainland.
With no restrictions on the amount of foreign currency individuals can buy to invest, Hong Kong's H-share index, which covers mainland Chinese companies listed in the territory, rose almost 9 per cent yesterday to 11,964 points.
"The impact of Chinese money on the Hong Kong market could increase dramatically," said Vincent Chan, an analyst with Credit Suisse in Hong Kong. "It will fundamentally change the dynamics of the Hong Kong market if this policy is adopted fully."
Although China has had a stock market since 1990, its infrastructure has trailed that of the western world in a number of ways, including the maintenance of curbs on investors owning shares overseas and on foreigners buying domestic stocks. Encouraging funds to flow offshore will alleviate some of the pressure.
"Markets are still not fully fungible because foreigners can't invest directly in the Chinese market and there is no mechanism for shorting stocks [trading in borrowed securities], but these new rules are a big step towards that goal," said Jerry Lou, equity strategist at Morgan Stanley.
Chinese individuals were recently allowed to invest in foreign securities indirectly, through structured products offered by large banks, insurers and fund managers which are themselves constrained by what they can invest in.
Once it secures final approval from the China Banking Regulatory Commission, the programme is due to be expanded toother banks and offshore markets.
Initially, however, investors will have to invest through Bank of China, which must conduct all trades through its branch in the northern city of Tianjin's Binhai special economic zone, which enjoys particular favour with the central government.
posted by Carlos T Mock at 9:22 AM
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