China Vows to Expand Stock Connect in Further Market Opening

(Bloomberg) — Chinese regulators vowed to accelerate the opening up of its capital markets and deepen reforms to attract more foreign investors.

The securities regulator will expand the scope of investments allowed in the stock connect program link with Hong Kong, and allow foreign investors to trade more commodities futures products, China Securities Regulatory Commission Vice Chairman Fang Xinghai said at the China International Financial Annual Forum 2020 on Sunday in Beijing.

Officials are planning to announce revised rules on qualified foreign institutional investors as soon as possible to increase their “willingness and confidence” to invest in China, he said. Foreigners currently hold only 4.7% of Chinese stocks in circulation, way below the more than 30% in markets like Japan and South Korea, he said.

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

China is also opening its financial markets this year to allow Wall Street giants such as Goldman Sachs Group Inc. to take full ownership of ventures in the country, counting on them to provide fresh investments and foster a more competitive local industry.

The move comes against a backdrop of rising tension with the U.S. over issues including trade and the crackdown on 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,” 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.

Eugene Qian, chairman of UBS Group AG’s local securities venture, said at the forum that there’s need for a “looser, more open” regulatory environment, calling on regulators to also ease micro-regulation such as that on individual products and financial companies’ subsidiaries. That would allow firms to use self discipline and develop new products without fearing regulatory punishment, he said.

The yuan-denominated financial assets’ appeal to international investors has been growing 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 jumped 37% to 7.7 trillion yuan ($1.1 trillion) as of July 31 from a year earlier, he said.

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

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