BUSINESS China gears up for financial opening as markets mature

BUSINESS

China gears up for financial opening as markets mature

By Xie Jun | Global Times

11:58, February 01, 2019

Yuan-denominated bonds will be included in the Bloomberg Barclays Global Aggregate Index starting in April, the People's Bank of China (PBC), the central bank, announced on Thursday. 

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File photo: VCG

The move comes as China ramps up efforts to open its bond market to overseas capital, as the country pushes forward financial opening-up. 

Overseas companies have also been expanding in the domestic financial markets, such as including Chinese financial products in their global indexes or setting up wholly owned business entities as they respond to such opening-up measures. 

US-based rating agency S&P Global has also been allowed to conduct local credit rating business via its wholly owned unit in the Chinese mainland. 

These moves come as China is mounting efforts to open its financial sector to overseas capital. It is using such methods as reducing the ownership limits on overseas financial capital and lifting the quotas of stock link programs between the Chinese mainland and Hong Kong. 

China's securities regulator on Thursday also unveiled draft rules for the Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors schemes. It proposed merging the schemes, marking another step in China's two-way financial opening-up. It also said the investment scope of the programs will be widened, covering stocks on China's New Third Board, bond repurchases, private investment funds, financial futures, commodity futures and options.

Xi Junyang, a professor at the Shanghai University of Finance and Economics, said that China is in an "accelerating process" of financial opening-up. 

"China's real economy is almost entirely open to overseas capital, while the financial sector lags far behind. This is why the government is quickening its pace of financial opening-up, so that it can match China's general economic integration with the world," Xi told the Global Times. 

"The conditions for such opening-up and reforms are ripe. Domestic financial industries are growing increasingly mature and there is a comparatively complete competition mechanism, so overseas capital won't cause too much turbulence in the domestic markets."  

Overseas investors have responded actively to the government's opening-up measures. According to the PBC statement, as of the end of 2018, international investors' holdings of yuan-denominated bonds reached about 1.8 trillion yuan ($269 billion), up 46 percent on a yearly basis. China's bond market size is about 86 trillion yuan.

"China's financial opening-up pace is a bit quicker in the bond sector, as the bond link program between the mainland and Hong Kong is unblocked without any quota limitations, compared with stock link programs. 

"I believe the Bloomberg Barclays Global Aggregate Index's inclusion of domestic bonds will draw a large amount of incremental capital into the domestic market," Xi said.

Xi added that in 2019, measures in the securities sector would catch up, with the government likely to further reduce foreign ownership limits or even completely scrap the restrictions. 

Science-technology board

Another major move in financial opening-up was the release of draft rules for the operation of a science and technology board in Shanghai on Wednesday. This move highlighted an array of innovative arrangements to underpin the nation's stock market reforms.

Rules specifically devised for the board include a 500,000-yuan stock account minimum balance requirement and at least 24 months' history of securities trading. There will also be no up or down price fluctuation limits in the first five trading days, although there will be a 20-percent daily limit in both ways thereafter.

A board lot of at least 200 shares can be increased by one share afterward, according to a statement by the Shanghai Stock Exchange. The Shanghai stock market rose by 0.35 percent on Thursday, while the Shenzhen market rose 0.12 percent. 

Zhao Xijun, co-director of the Finance and Securities Research Institute at the Renmin University of China, said that the science and technology board is a "major step" in financial opening-up as it is a move to turn China's traditional capital market into a relatively market-oriented one with a set of new rules for stock listings.

"Of course the board can't satisfy the financing needs of all the high-tech companies in China, but at least it provides another channel of financing," Zhao said.

The board should be seen as a selection system to choose the best high-tech companies in China for listing, not an inclusive financial system, Zhao added. 

The science and technology board will also be a "beacon" for domestic high-tech companies, as they will upgrade their business to reach the threshold of the board.

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