China goes after higher-level opening-up of the financial sector with more measures on the way

Aerial panoramic photo taken on Oct. 25, 2020 shows a view of the Lin-gangSpecial Area of Pudong New Area in Shanghai, east China. (Xinhua/Fang Zhe)

BEIJING, Aug. 5 (Xinhua) -- China will promote a higher-level opening-up of the financial sector based upon the negative list with several detailed measures mulled to go. 

Relevant authorities are mulling pilot programs for high-level opening-up of foreign exchange administration in the Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone, Guangdong-Hong Kong-Macao Greater Bay Area and part of Hainan Free Trade Port, to accumulate experience for high-level institutional opening-up, reported Economic Information Daily.

With the two-way opening-up rolling forward, external capital will flow in while Chinese residents could have more opportunities in terms of overseas asset allocation, the reported cited industry experts as saying. 

-- Intensive policies rolling

Relevant authorities have been rolling out series of policies targeting at higher-level opening-up in financial sector.

China will deepen financial reform and opening up to strengthen financial sector's capability to serve the real economy, making good use of domestic and international markets and resources to make China always a high choice for investment, according to an executive meeting of the State Council held recently.

The opening-up promise will be kept through real actions based on the negative list and at high standard benchmarking good international practices, it said. 

In the meantime, the People's Bank of China (PBOC) said in a work meeting that it would organize and coordinate work for nationwide opening-up, pilot free trade zones opening-up, and some bilateral or regional opening-up through free trade agreements in the second half of 2021.

The State Administration of Foreign Exchange (SAFE) pointed out during work conference for 2021 H2 that it would put opening-up of the foreign exchange sector into practice, further expand pilot programs for facilitating trade and foreign exchange receipts and payments, cross-border investment by private equity funds and integration of domestic and foreign currency capital pools for multinational corporations, while actively support the development of new forms and models of foreign trade.

China will advance the opening-up in its capital projects in a prudent and orderly manner. It will coordinate transactions and exchange, cross-border RMB and foreign currency administration, capital account opening and risk prevention, promote the opening-up of a few non-convertible projects in an orderly manner, and improve the facilitation of convertible projects, according to Pan Gongsheng, deputy governor of the PBOC and head of the SAFE.

The country's deepening supply-side structural reform, lowering macro risks, and the refining regulatory system paved the way for institutional and high-level opening-up, said Zhou Maohua, analyst with China Everbright Bank's financial market department.

-- Piloting programs on the way

Along with the rolling policies, pilot programs of high-level opening-up of foreign exchange administration will be launched in places such as Shanghai and Guangdong-Hong Kong-Macao Greater Bay Area to accumulate experience for high-level institutional opening-up.

The PBOC will support Shanghai as a pilot for free use of RMB, according to Wang Xin, head of the research bureau of the PBOC. Shanghai will further facilitate the receipts and payments of enterprises' trade and investment funds, explore the free flow and free exchange of capital in its Lin-gang Special Area, and become an important hub and bridge to connect the international and domestic markets under the new development pattern, he said.

Pilot programs are also mentioned by Pan Gongsheng for Lin-gang Special Area of Shanghai, Guangdong-Hong Kong-Macao Greater Bay Area and part of Hainan Free Trade Port to acumulate experience for promoting high-level institutional opening-up in the foreign exchange sector.

China has basically opened up its foreign exchange administration under the current account, but the capital account is still not able to flow freely. Relevant restrictions are there for financial risk control and maintain the order of the financial market, according to Zeng Gang, deputy director of the National Institution for Finance & Development.

The pilot programs in the Greater Bay Area, Hainan Free Trade Port and other areas will control risks in a relatively closed environment, which will help create conditions for further opening-up, Zeng noted.

-- More overseas asset allocation available

Under the two-way opening-up of financial sector, along with the flowing-in of the foreign capital, Chinese residents will have more opportunities to allocate overseas assets as well.

China will expand the scale of qualified domestic institutional investors (QDII) through financial infrastructures such as Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Bond Connect, improve QDII management mechanism, and launch cross-border wealth management services in piloting regions.

Since the launch of the Northbound trading of Bond Connect in 2017, global investors have shown increasing interest in China's interbank bond market, and the Bond Connect has attracted more than 2,400 institutional investors around the world. According to the Hong Kong Monetary Authority, the Bond Connect achieved an average daily turnover of nearly 30 billion yuan in 2020, accounting for 52 percent of the total turnover of overseas investors in China's interbank bond market.

Northbound trading related services will be further optimized, said Zhang Yi, President of China Foreign Exchange Trading System & National Interbank Funding Center and Chairperson of Bond Connect Company Limited, noting that preparation work will be conducted for the Southbound trading to steadily promote the high-level two-way opening-up of the bond market.

For investors in the Chinese mainland, the Southbound trading would offer a new way for global asset allocation, expanding the scope for asset allocation while significantly reducing the cost of global bonds for domestic investors, which was only available through channels such as QDII before, industry insiders note.

Hong Kong has more bonds and derivatives to meet the diversified investment and risk management needs of mainland investors," said Yu Lifeng, an analyst with Golden Credit Rating International Co.,Ltd.

(Edited by Niu Huizhe with Xinhua Silk Road, niuhuizhe@xinhua.org)