Talk of plan for outbound China investors revived

Singapore

IN the latest sign that China is regaining control of capital outflows and market stability, talk of a plan to allow individuals to invest abroad has gained new momentum, two years after market turmoil and capital flight led the authorities to shelve the proposal.

The foreign-exchange regulator is seeking State Council approval for a pilot plan that could allow Chinese to individually invest in securities traded overseas, according to people familiar with the matter.

The State Administration of Foreign Exchange (SAFE) plan would start in cities including Shanghai and Tianjin and would keep in place a US$50,000 annual limit for residents seeking to convert the yuan to foreign currencies, they said.

The plan is significant because it would signal a departure from strict controls on outbound investment by individuals and companies, including an announcement last week that further restricted the types of investments domestic companies can make abroad.

The people said a pilot programme wouldn't be possible until after the Communist Party Congress - the timing of which has not yet been announced but is expected this autumn.

Among the factors determining whether the trial would go ahead include ongoing stable financial markets as well as continued control over the outflow of the yuan, the people said, noting there's no guarantee that the programme will be launched. It has been under discussion for years.

The central bank has reviewed a months-long study of the proposal and is prepared to move ahead with a pilot programme once it receives approval from the State Council, said the people, who asked not to be identified because the matter hasn't been made public.

SAFE didn't immediately reply to a fax seeking comment. In an email, the People's Bank of China said it had not submitted a report to the State Council regarding the programme.

The plan, known informally as QDII2, is a trial for Chinese citizens to invest in securities traded abroad. The proposal is an extension of QDII (qualified domestic institutional investor) programme, that the government launched in 2006, which allows individuals to buy securities in overseas markets through asset managers.

Momentum has built for QDII2 for years, with central bank deputy governor Pan Gongsheng cited by the Securities Times as saying in 2015 that "conditions are ripe" to roll out the programme in some places. Not long after, China's stock markets plunged in a US$5 trillion share sell-off, and investors started shifting capital overseas, betting the yuan would keep falling.

The fact that the programme is again being actively discussed reflects leaders' confidence that capital movements have returned to a more stable level.

As yuan outflows abate, the authorities want to refocus on economic reforms and show global markets that China is still committed to opening up, according to the people. BLOOMBERG