China vows to expand stock connect in further market opening

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

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

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 per cent of Chinese stocks in circulation, way below the more than 30 per cent in markets like Japan and South Korea, he said.

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

China is also opening its financial markets this year to allow Wall Street giants such as Goldman Sachs Group 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 US 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.

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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.

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 per cent to 7.7 trillion yuan (S$1.54 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.

BLOOMBERG