Friday 15 November 2019

China relaxes stock market rules to encourage more foreign investors

Currently, foreign carmakers must form joint ventures in China to make cars locally, but overseas component makers are not subject to any ownership requirements
Currently, foreign carmakers must form joint ventures in China to make cars locally, but overseas component makers are not subject to any ownership requirements

Kazunori Takada

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 yesterday, foreign investors on the Shanghai stock exchange will be allowed to invest in more products and can invest up to 30pc in a single company, up from 20pc 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 yesterday 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 30pc from 20pc, according to new rules by the exchange published on its website late on Wednesday.

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 programme, 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." (Reuters)

Irish Independent

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