A plan to allow mainlanders to invest in overseas capital markets has been floated by Hong Kong fund managers.
The proposal calls for the creation of a new class of shares, such as a 'C' class, for subscription by mainland investors. The shares would be offered by the 1,800 or so funds authorised by the Securities and Futures Commission.
The mainland investors' money would be invested in Hong Kong and overseas capital markets through the funds. The key feature, however, is that the shares' subscription and redemption would be confined to China to prevent capital outflows.
China has tight control on foreign exchange movements because the yuan is not freely convertible. Beijing is concerned about the potential outflow of capital once it allows offshore investments.
The proposal from the Hong Kong Investment Funds Association comes after Dai Xianglong, governor of the People's Bank of China, said in March that the mainland would study ways of allowing the billions of dollars in personal foreign currency holdings in the mainland to flow into the Hong Kong stock market.
Mainlanders - institutions and individuals alike - have combined forex holdings of US$135 billion.
The association, which represents 50 fund houses managing a combined US$200 billion, recently put its plan to the SAR's Financial Services Bureau and the mainland's China Securities Regulatory Commission.
