06 March 2008

FT: China signals it could ease share curbs

The head of China’s central bank said on Thursday that Chinese citizens could be allowed to invest directly in stocks in London, Tokyo or Singapore as well as in Hong Kong.

A plan to allow the right to invest directly in Hong Kong – which was abruptly suspended late last year – is still on track but could be modified to include markets beyond the territory, Zhou Xiaochuan, governor of the People’s Bank of China said.

He was speaking on the sidelines of the annual meeting of the National People’s Congress, China’s legislature. The comments from Mr Zhou and other senior officials indicate that Beijing remains committed to reducing controls on offshore investment by its citizens in spite of concern among other parts of the government that such a move could trigger a collapse in the mainland stock market.

Mr Zhou refused to give more details but said that Chinese investors should be allowed to invest directly in other global markets, including London, Japan and Singapore. “The controls and regulatory approvals we have implemented in the past [on capital flows in and out of China] will be gradually reduced and abolished,” Mr Zhou said. “We will support overseas investments by domestic residents.”

The central bank is trying to encourage outflows of capital from China to relieve pressure on the renminbi and reduce excess liquidity that is feeding rising inflation.

Last August, the State Administration of Foreign Exchange announced plans for the “through train” scheme to allow individuals to buy Hong Kong shares by opening trading accounts with Bank of China in the port city of Tianjin. The news helped push Hong Kong’s benchmark stock index up 65 per cent from a low it reached in late August to a record high of 31,638 at the end of October.

But the “through train” scheme was quickly suspended after fierce opposition from other government departments, including the banking and securities regulators. They worried that a rush of money into Hong Kong, which is outside China’s capital controls, could damage liquidity in the domestic equity markets.

Mr Zhou’s Thursday comments echoed those of Dai Xianglong, chairman of the National Council for Social Security Fund and until last month mayor of Tianjin, who told the Financial Times last week that the government was still planning to allow individuals to convert renminbi into foreign currencies and make investments in overseas stock markets.

nd on Wednesday, Xiao Gang, chairman of Bank of China, also said his bank was working on technical details of the scheme.

By Jamil Anderlini in Beijing

© Graham Bishop