Sunday 22 September 2019

China removes $300bn cap on foreign investors

Stalemate: Removal of cap is seen as a gesture while US president Trump and Chinese premiere Xi fail to resolve trade war
Stalemate: Removal of cap is seen as a gesture while US president Trump and Chinese premiere Xi fail to resolve trade war

Lucille Liu

China has 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 (SAFE) said in a statement yesterday. It removed the $300bn (€271.7bn) overall cap on overseas purchases of the assets, about two-thirds of which remain unused.

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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 $111bn of the $300bn quota available to them by the end of August. There are also alternate routes of investment, including trading links with Hong Kong Exchanges & Clearing 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... There's a lack of positive development in the trade talks with the US."

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 0.6pc 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 US President Donald Trump attacked China as a one-sided beneficiary of global commerce.

China last year 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.

Under the changes 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," said SAFE.

Bloomberg

Irish Independent

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