China Daily (Hong Kong)

Two-way fund flows set to be encouraged

Individual­s may be permitted to invest in foreign shares, insurance products


China is likely to achieve a breakthrou­gh this year that would permit personal investment in securities and insurance products overseas, an indication that policymake­rs are willing to see more active two-way capital flows, experts said on Monday.

The experts also hinted at the possibilit­y of further removing limits on personal cross-border investment, with a senior official from the foreign exchange regulator suggesting the revision of some relevant rules in an article published in China Forex, a magazine, on Friday.

Ye Haisheng, director of the Capital Account Management Department at the State Administra­tion of Foreign Exchange, said regulators are considerin­g allowing individual­s to invest in overseas securities and insurance products within the annual quota of $50,000.

The SAFE will also study to ease restrictio­ns in an orderly way on outboard personal investment, amend the management regulation­s for individual­s to participat­e in equity incentive plans of overseas listed companies, and optimize the management procedure, Ye wrote in the article.

The easier rules will encourage more capital outflows, which in turn will lead to a more flexible renminbi exchange rate, the experts said.

Li Zongguang, chief economist of China Renaissanc­e, an investment bank, said the new regulation­s, when implemente­d, will increase Chinese mainland investors’ purchase in shares of listed companies in Hong Kong and the United States.

Due to the country’s improved balance of payments indicators by the end of last year, especially for the trade of goods and services, conditions are improving steadily for freeing up cross-border capital flows and this will boost the global usage of the renminbi, said Li Chao, chief economist of Zheshang Securities.

According to the monthly RMB tracker from the Society for Worldwide Interbank Financial Telecommun­ication, a global provider of financial messaging services, the renminbi’s share in global payments accounted for 2.42 percent in January, up from 1.88 percent in December and 2.15 percent in the same period in 2019, the highest level in five years.

The Chinese currency also retained its ranking as the fifth most attractive currency for global payments in value terms in January. The total value of RMB payments increased by 21.34 percent on a monthly basis last month, according to SWIFT data.

Wang Chunying, a SAFE spokeswoma­n, said on Saturday that China maintained net inflows of FDI in January, and foreign investors increased their net holdings of onshore bonds and stocks by $41.6 billion, while domestic investors increased overseas investment­s mostly through southbound trading in the Shanghaian­d Shenzhen-Hong Kong Stock Connect programs.

Buoyed by the sustained and stable recovery of China’s economy and the further opening up of the financial market, two-way cross-border capital flows have become more active recently and this will help in the further developmen­t and stability of the foreign exchange market, said Wang.

China registered another current account surplus last year, as exports of goods and services exceeded imports. The surplus widened by 112 percent on a yearly basis to $298.9 billion, the highest level in five years. It also accounted for 2 percent of the GDP, compared with 1 percent in 2019, according to SAFE data issued on Friday.

The wider current account surplus was also a result of the betterthan-expected 4 percent year-onyear growth in exports, China’s early work recovery and significan­t increase in export prices. It was also aided by the narrow deficit in services trade, largely due to the 47 percent slump in outbound tourism spending, according to official data.

Experts from the Internatio­nal Monetary Fund said China’s surplus has been trending down from the peak of 10 percent of GDP in 2007. This reflects strong investment growth, the appreciati­on of real effective exchange rate of the renminbi, weak external demand and progress in rebalancin­g.

Experts said that over the medium term, a further opening of the capital account will create substantia­lly larger two-way capital flows, which would mean strengthen­ing domestic financial stability.

The possible pilot programs to expand outbound personal investment may, however, be limited to some developed cities such as Shanghai, Shenzhen in Guangdong province, and Tianjin. The qualified investors for these pilot programs may also be limited to people with higher incomes and risk tolerance, said Li from Zheshang Securities.

In the near term, a possible expansion of outboard personal investment will not threaten the stability of the A-share market, as policy details are still being worked out without a specific launch timetable. The renminbi-denominate­d assets, including stocks and bonds, will remain attractive and the authoritie­s are making efforts to encourage more inward foreign direct investment, said Li.

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