Direct Financing Needs to Expand, A-shares Warrant Foreign Investment: Chinese Securities Regulator

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One of the senior-most officials at the China’s securities regulator has flagged efforts to expand A-share investment from foreign institutional investors.

Fang Xinghai (方星海), deputy chair of the China Securities Regulatory Commission (CSRC), said that China’s financial opening was mainly about attracting more high-quality foreign-invested companies into the Chinese market.

“I think that a very important matter is allowing foreign-invested institutions to hold 100% of equity in Chinese [companies] starting from 1 April this year,” said Fang.

“Of course, consideration must also be given to the many restrictions still imposed upon foreign-invested companies, but I believe that the market share of foreign-invested companies in China will continually increase.”

Fang made the remarks at the 2020 Davos Forum, during a discussion on trends in China’s capital markets.

According to Fang the market share of foreign institutional investors in China is rising very rapidly, and Chinese A-shares are a market “highly deserving of investment” for overseas capital.

Fang pointed out that while retail investors originally dominated the A-share market, institutional investors are now

rapidly rising in prominence. As of the end of last year institutional investors accounted for a 20.6% share of China’s A-share market, as compared to 17.5% in 2018.

“Which institutional investors are expanding most rapidly in China? Foreign-invested institutions,” said Fang.

“As of the end of 2018 their share was 3.1%, as of the end of 2019 they increased 35%.”

Fang further pointed out that the scale of financing provided by China’s capital markets was still comparatively small at perhaps just 10% and that direct financing needed to expand in scale.

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