China looks to broaden access to its markets through Hong Kong

Foreigners currently hold just 4.7% of Chinese listed companies, compared to about 30% of Japanese and South Korean stocks

A Hong Kong stock exchange sign. China will extend a stock-connect programme with the Hong Kong bourse to allow foreigners to trade in areas of the Chinese market such as commodity futures. Reuters

China will hasten the opening up of its capital markets and deepen reforms to attract more foreign investors, the Securities Regulatory Commission vice chairman Fang Xinghai said.

The regulator will expand the scope of investment allowed in the stock-connect programme link with Hong Kong and allow foreign investors to trade more commodity futures, he said at a financial forum on Sunday in Beijing as part of the China International Fair for Trade in Services.

Officials plan to announce revised rules on qualified foreign institutional investors as soon as possible to increase their “willingness and confidence” to invest in the country, he said.

Foreigners currently hold only 4.7 per cent of Chinese stocks in circulation, way below markets such as Japan and South Korea, where they hold more than 30 per cent.

“There remains a huge potential” to usher in foreign capital, Mr Fang said.

China will also open its financial markets this year to allow Wall Street companies such as Goldman Sachs to take full ownership of ventures in the country, counting on them to provide fresh investment and foster a more competitive local industry.

The move comes against a backdrop of rising tension with the US over issues that include trade and Hong Kong. Weighed down by the virus outbreak, China’s economy is poised for its slowest expansion this year in four decades.

The participation of foreign investors has helped make the Chinese stock market “more rational” and valuations “more reasonable”, Mr Fang said.

The long bear market sessions and short bull runs that have long plagued China are “disappearing”, he said.

China last year removed the ceiling on quotas for foreign investors to buy stocks and bonds, after also easing rules in 2018. The country is pushing to increase use of the yuan in international transactions, while also attracting more foreign capital.

Yuan-denominated financial assets have grown in appeal to international investors as more central banks use the Chinese currency in their foreign reserves, Chen Yulu, deputy governor at the People’s Bank of China, said at the forum.

Foreigners’ holdings of such domestic assets rose by 37 per cent from a year earlier to 7.7 trillion yuan (Dh4.1tn/$1.1tn) as of July 31, he said.

The yuan can assume “greater international responsibilities” in the future as China’s opening up deepens, he said.