China's capital market deregulation gathers speed

China took further steps to deregulate its capital markets after the China Securities Regulatory Commission decided to combine two inbound investment schemes and broaden their investment scope to include derivatives, bond repurchases and private funds.

The move, which comes close on the heels of Yi Huiman, the former chairman of the Industrial and Commercial Bank of China Ltd, taking the helm at CSRC, will integrate regulations for the qualified foreign institutional investor (QFII) and renminbi qualified foreign institutional investor (RQFII) schemes and enable investments in products like stocks listed on the National Equities Exchange and Quotations and will allow them to participate in margin trading.

The new rules are aimed at "promoting high-quality opening up of China's capital markets and introducing more long-term overseas capital", the CSRC said in a statement on its website.

Pan Xiangdong, chief economist of New Times Securities, said that the announcement is in line with investors' expectation of a more open Chinese market. The new policies will introduce more long-term overseas capital, optimize investor structure, lead the market to value investment and perfect corporate governance of listed companies, he said.

"The capital market will therefore become more efficient via more technology exchanges. The trading rules in the Ashare market will also be more international." There were 309 domestic and overseas institutions with QFII status by the end of last year. A total of 233 overseas institutions from 19 countries and regions were granted the RQFII status during the same period.

Although the Shanghai Composite Index shed more than 25 percent last year, which was the biggest slump among all major markets, overseas investors' interest in the A-share market remained unchanged. Data showed that over 294billion-yuan ($44 billion) worth of overseas capital flowed into the A-share market last year.

In addition, the A-share market saw capital inflows of 9 billion yuan through the Shanghai, Shenzhen and Hong Kong stock connects, the highest daily inflow so far this year. The CSRC also relaxed the regulations on securities firms' investments in constituent stocks and exchange traded funds.

According to Hu Lifeng, general manager of the fund research center at Galaxy Securities, equity funds and hybrid funds developed by public funds still invest a limited sum in stocks. Under the new regulations, the equity funds will be able to seek better returns, thereby providing strong support to the real economy.

The new regulations will also remove curbs on margin trading and brokerages will be able to decide when to issue a margin call and make more assets available for margin trading. Jiang Qijia, a senior analyst at financial services provider Noah Holdings, said that the current margin trading volume is around 720 billion yuan, accounting for 2 percent of the total value of A shares. It is half the volume in 2015 and 20 percent down from the peak in 2017.

"Previous experiences show that Chinese investors mostly make long position investments when it comes to margin trading. The new regulations will inject more vitality into the market," he said.

Meanwhile, market confidence was buoyed on the last trading day before the Chinese New Year holiday. The benchmark Shanghai Composite Index gained 1.3 percent to close at 2618.23 points, while the Shenzhen Component Index rose 2.74 percent to close at 7684 points.

China's securities regulator has approved the initial public offering (IPO) applications of two companies.

The companies are Shanghai Yongguan Adhesive Products Co Ltd, and Qingdao Rural Commercial Bank, according to the China Securities Regulatory Commission (CSRC). The companies and their underwriters will confirm IPO dates and publish their prospectuses following discussions with the stock exchanges.

Under the current IPO system, new shares are subject to approval from the CSRC. China is gradually switching from an approval-based IPO system to one based on registration. China's accounting sector recorded an estimated annual revenue of 100 billion yuan ($14.8 billion) in 2018, according to the Ministry of Finance (MOF). The reading marked a steady industry expansion with accounting firms raking in around 90 billion yuan and 80 billion yuan in 2017 and 2016, respectively.

The total number of accounting firms reached 7,862, and there were 109,352 certified public accountants in China, MOF data showed. They provided services to over 4 million enterprises and institutions, including more than 3,000 listed companies. China Great Wall Asset Management Corporation (Great Wall), one of the country's biggest distressed debt managers, mulls allocating 108 billion yuan ($16.03 billion) to buy non-performing assets.

The company plans to spend 60 billion yuan to purchase financial non-performing capital and 48 billion yuan for non-financial bad assets, respectively.