Capital Market Opening Will Follow China’s Financial Maturation: CSRC


The securities regulator says that the China’s central government is readying itself for the opening the country’s capital markets, as part of broader liberalisation and reform of the Chinese financial sector.

Speaking at the 2018 China and the World Thought Dialogue (2018中国与世界思想对话会) on 28 April Fang Xinghai (方星海), vice-chair of the China Securities Regulatory Commission (CSRC), said that the authority is busy with extensive preparations for a large-scale opening of the country’s capital markets.

According to Fang once China’s financial sector opening has matured, the capital markets will be then be opened.

“The Chinese government has chosen to first open up the financial services sector, and once the quality of the financial services sector and financial services institutions increases, consideration will then be given to opening of the capital market.”

Fang further points out that capital opening will be a gradual process completed under the auspices of government control in order to forestall any risk.

“I am highly confident that there will not be a large-scale financial crisis or risk,” said Fang. “We must use appropriate regulation to reduce risk…[and] we are capable of effectively managing these risks.”

With respect to timing Fang said that financial opening cannot be implemented in accordance with specific timeframe or schedule, as there are many variables that underlie the timing of key milestones.

“Our direction is firm and we know what needs to be done….but we cannot establish a specific time.”

Fang’s remarks arrive following the introduction of a number of measures to further open up China’s finance sector to foreign investors, after President Xi Jinping and central bank governor Yi Gang reiterated Beijing’s commitment to financial opening at the 2018 Boao Forum for Asia at the start of April.

Over recent years China’s has continually expanded the channels for overseas investors to acquire Chinese A-shares, with the introduction of the Qualified Foreign Institutional Investor (QFII) scheme in 2006, the RMB Qualified Foreign Institutional Investor scheme in 2011, and more recently the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect schemes, which permit trading between bourses.

The volume of trading permitted via both stock connect schemes increased four-fold on 1 May, which means that the daily trading volume for Hong Kong and Shenzhen shares has risen to 52 billion yuan from 13 billion yuan, while for Hong Kong shares it’s risen to 42 billion yuan from 10.5 billion yuan.

According to industry observers the dramatic four-fold increase in the daily trading volume for the stock connect schemes will significantly abet the expansion of foreign investment into Chinese A-shares.

They also expect QDII and QFII reforms to produce channels for capital account opening and better connect domestic and overseas capital markets, while improvements to macro-prudential regulation and examination and approval procedures will help to prevent risk in relation to cross-border capital flows.

Data from Wind Info indicates that the volume of “northbound” capital has increased significantly of late, helping to drive reform of China’s A-share market.

As of the end of April the total amount of northbound capital was 91.8 billion yuan, for an increase of 38% compared to the same period last year.