Beijing for many years has kept the world's fastest-growing major economy watertight - sucking in foreign investment but refusing to allow its increasingly cashed-up citizens to invest abroad.
Monday's announcement that individuals will be allowed to invest directly in Hong Kong stocks is one of the strongest signs yet sign that the once-watertight capital account has sprung a carefully managed leak.
Although the move is unlikely to see a flood of capital leave deposit accounts, it represents a significant step towards loosening the strict controls that have largely kept investors insulated from international markets.
'This is a major step towards capital account liberalisation, which at the macro level is obviously designed to further reduce the balance of payments pressure,' said Jun Ma, chief China economist at Deutsche Bank.
Deutsche Bank says total fund flows from the mainland to Hong Kong equities may reach US$40 billion from last month to June next year. That is twice the original estimate based on outflows through the qualified domestic institutional investor programme, but still relatively insignificant compared to daily turnover of more than US$10 billion on the Hong Kong exchange. QDII allows brokers and asset managers to buy foreign assets.
'Lifting the barrier to individual investments won't open the floodgates,' said Glen Maguire, chief Asia-Pacific economist at Societe Generale.
