China to boost foreign access to markets

Chinese stock investors check their share prices at a security firm in Wuhan.

Story highlights

  • China will give foreign investors greater access to its stock and bond markets
  • Will increase quotas allocated to foreign institutions for investing in its capital markets
  • Communist party in Beijing this week for a congress to unveil the country's leaders

China will give foreign investors greater access to its stock and bond markets as part of a cautious reform push to open its financial system to the world.

Guo Shuqing, the securities regulator, said China would increase the quotas that are allocated to foreign institutions for investing in its closely guarded capital markets.

With the ruling Communist party gathered in Beijing this week for a congress at which they will unveil the country's leaders for the next decade, Mr Guo signalled that the government wanted to accelerate the opening of the country's financial system.

Hu Jintao, the outgoing chief of the Communist party, had made only a passing reference about the "deepening of financial system reform" in his opening address to the congress. Mr Guo's comments, made at a news conference on the sidelines of the party conclave, are the first elaboration of what those reforms are likely to involve.

Worried about destabilising capital flows, China has long capped the amount that foreign institutions can invest in the country's capital markets. But with the Chinese stock market among the worst performing in the world over the past three years, the regulator has been trying to attract more foreign money.

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Giving foreign investors more channels to invest in China is also seen as an important part of building the renminbi into a global currency, since those holding renminbi outside China have been demanding more investment options.

Mr Guo said the government would nearly quadruple the amount of renminbi held offshore that it allows to re-enter the country's markets. The current ceiling is Rmb70bn ($11.2bn); Mr Guo said the plan was to allow an additional Rmb200bn into China.

On top of that, he said that regulators were also committed to increasing the overall quota for foreign institutions investing in China. Earlier this year China increased that quota to $80bn from $30bn. When that $80bn mark is hit, the cap will be lifted again, Mr Guo said.

Individual institutions will be allowed to invest more as well, with the cap on their portfolios potentially increased to up to $5bn from $1bn, he said.

Mr Guo also sought to address some of the main complaints that foreign investors have voiced about the Chinese financial system. He promised that tax incentives would be announced soon and that the process of taking money out of China would be made easier.

Although China is the fastest-growing big economy in the world, it has struggled to persuade foreign investors to take its markets seriously. Foreign investors and analysts say that its stock market, which has dropped more than 60 per cent from its peak in late 2007, resembles a rigged casino, with rampant insider trading and weak corporate governance.

Government advisers in Beijing say that Mr Guo has been under heavy political pressure to stabilise China's markets in time for the Communist party congress.

The Shanghai Composite, the country's main index, has continued to list downwards over the past month, but Mr Guo put the most positive possible gloss on the situation. "The market is building a firm bottom and it is full of new possibilities," he said.