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China economy

China’s stock market must attract more foreign investors, industry regulator says

Financial sector, capital market not connected to rest of world, vice-chairman of China Securities Regulatory Commission says

PUBLISHED : Sunday, 24 June, 2018, 10:10pm
UPDATED : Sunday, 24 June, 2018, 10:26pm

China must continue to take steps to attract foreign funds and investors to its stock market, according to a senior official with the industry watchdog.

Fang Xinghai, a vice-chairman of the China Securities Regulatory Commission, said the financial sector and its capital market, which are largely shielded by a closed capital account, were not connected with the rest of the world, broadcaster China Business Network reported.

“Foreign investment accounts for just 2 per cent of the total value of the A-share market … so we need to open it up further,” he was quoted as saying.

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The weighting of China’s A-shares [mainland traded stocks] within the MSCI Emerging Market Index, a global benchmark, was just 5 per cent, Fang said, adding that Beijing was trying to increase that figure to 15 or 20 per cent.

His comments came as Beijing is working hard to attract foreign banks and financial investment to counter growing capital outflow pressures.

In his speech at the Boao Forum for Asia in April, Chinese President Xi Jinping promised foreign banks, brokerage houses and insurance firms they would be allowed to hold majority stakes in joint ventures with Chinese partners. Since then, Beijing had received a lot of applications for such deals, Fang said.

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China’s stock market fell to a two-year low last week after US President Donald Trump escalated trade tensions with the threat of more tariffs on Chinese goods.

If the fall continues this week, the market could lose its status as the world’s second largest.

Fang said Beijing was trying to give foreign investors more opportunities to manage risk, through index futures and other derivatives.

“Risk management and control is the eternal theme during the process of opening up. Many developing counties have found that during the opening up of their financial markets, there was a lack of supervision, resulting in bubbles and overvaluation,” he said.

“For China, I think the most important thing in preventing financial risks is to prevent asset bubbles while remaining open [to foreign investors].”

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Meanwhile, Shanghai’s free-trade zone, which Beijing regards as a leader in market liberalisation, last week issued 25 new preferential policies for foreign financial institutions, including allowing them to establish branches and subsidiaries simultaneously, and increase their stakes in joint ventures.

Wealth management and money exchange companies, trust firms, and car and consumer finance businesses are all welcome to set up in the zone, it said.

At the same time, the Shanghai government has promised to make it easier for foreign finance professionals and their families to settle down in the city.

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At the Lujiazui financial forum earlier this month, Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, said Beijing was determined to make the financial industry more accessible to foreign players.

“Some comrades are concerned that opening up … could hit China’s financial markets and is a threat to the nation’s financial safety, but such worries are unnecessary,” he said.

Foreign lenders currently accounted for just 1.3 per cent of China’s banking assets and 6 per cent of the insurance sector, Guo said.