China opens investment door wider

Published:2016-06-13    Source:HICG

China is opening the door wider for US investors to buy Chinese securities and to promote more trading of the Chinese yuan in the American market.

 

Chinese officials, after two days of high-level talks with counterparts, announced Tuesday that US investors are being offered a quota of 250 billion yuan ($38.1 billion) to buy Chinese stocks and bonds. They also said that Beijing and Washington will designate one Chinese bank and one US bank as clearing banks in the US for setting yuan transactions.

 

Both moves should facilitate greater access to the Chinese financial markets, which still are regulated tightly, and are part of an effort by Beijing to make the yuan a more internationally viable currency without giving up control.

 

US treasury Secretary Jack Lew, in Beijing for discussions, praised the moves, saying they ‘will support the competiveness of the US financial and corporate sectors and improves US investors’ access to China’s on-shore capital markets.’

 

The investment quota is part of a relatively new Chinese program-called Renminbi Qualified Foreign Institutional Investors-that allows approved fund managers overseas to use yuan, also known as Renminbi, raised outside the mainland to invest in China’s financial markets. An older program apportioned quotas in dollars, which could be converted into yuan for investments.

 

Under the yuan-denominated investment program, the new quota for US investors is the largest given out by the central bank after 270 billion yuan given to HongKong, a Chinese city that operates under its own laws.

 

US firms approved by Chinese regulators would be able now to invest yuan funds rasied overseas up to that amount toacquire Chinese securities.

 

‘The US is a very important market,’ Yi Gang, a deputy central-bank governor, said at a briefing on the side-lines of the talks, known as the Security and Economic Dialogue.

 

China is the US’s largest trading partner.

 

Beijing has been trying to encourage foreign investment to help create growth and jobs as the world’s second-largest economy slows after a long boom. Since late last year, after capital surged out of the weakening economy and yuan, the central bank has tightened control over companies and individuals seeking to take money out while loosening restrictions on money coming in.

 

The US is one of the few major financial markets with little capacity for yuan investment, clearing or settlement. As a result, some US based asset managers, such as BlackRock Inc., have gone through their foreign affiliates to obtain yuan quotas to invest in China’s domestic stocks and bonds. Large US companies, likewise, need to tap their overseas affiliates or banking relationships, making the process costly and less efficient.