China ready with ‘precautionary measures’ to stop foreign traders causing market volatility, regulator says

China’s securities industry regulator says it will take ‘precautionary measures’ against foreign traders that cause serious market volatility

Investors have been lured to China’s markets by its strong recovery from the coronavirus pandemic and juicy returns on mainland securities

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Investors have been lured to China’s markets recently by its strong recovery from the coronavirus pandemic and juicy returns on mainland securities. Photo: EPA-EFE

Published: 7:31pm, 20 Apr 2021Updated: 7:31pm, 20 Apr 2021

China will suspend the ability of foreign investors to trade if they cause serious market volatility through massive capital flows in a short period of time, a senior Chinese regulatory official has said.

“Many people are asking whether foreign ownership will affect the stability of our stock market,” said Fang Xinghai, vice-chairman of the China Securities Regulatory Commission, at the Boao Forum for Asia on Monday.

“What if massive amounts of foreign capital come in and go out? I can tell you that we will take precautionary measures.”

Fang cited preventive measures available under the Stock Connect scheme, an initiative launched in 2014 that allows international investors to directly trade mainland stocks via the Hong Kong exchange.

Fang Xinghai, vice-chairman of the China Securities Regulatory Commission, says regulators are wary about the potential for market disruption by foreign hedge funds. Photo: Simon Song

“We had a provision when we designed the Stock Connect that if a foreign investor comes in and causes significant volatility in the stock market, we can temporarily stop it from trading,” he said.

Stock Connect has a daily quota restricting the maximum net value of cross-boundary trading flows, with daily “northbound” flows into China limited to 52 billion yuan (US$7.9 billion) and “southbound” flows to Hong Kong capped at 42 billion yuan.

Besides Stock Connect, foreigners can also invest in China A-shares via the Qualified Foreign Institutional Investor and RMB Qualified Foreign Institutional Investor programmes.