Following India’s decision to open its equity markets a little further to foreigners – and recent proposals to do the same for bonds – Chinese reformers are apparently pushing to loosen the even-tougher controls on foreign investment in their country.
As the FT reports, a new report from the central bank advocates a medium-to-long-term plan for removing restrictions, culminating in a largely convertible renminbi:
The report laid out three stages for reform. The first, over the next three years, would clear the path for more Chinese investment as “the shrinkage of western banks and companies has vacated space for Chinese investments” and presented a “strategic opportunity”. The second phase, in three to five years, would accelerate overseas lending of the renminbi, especially in support of trade deals.
Longer term, over five to 10 years, foreigners would be given more freedom to invest in Chinese stocks, bonds and property. At present, foreign institutions are restricted to relatively small quotas that are subject to a slow approval process.
Free convertibility of the renminbi would be “the last step” to be taken at some unspecified time, the central bank added, with restrictions on “speculative” capital flows and short-term foreign borrowing.
However, this will clearly not happen immediately. Not only does the report clearly argue for reforms to take place over many years, this simply represents an attempt by one group of officials to advance their agenda ahead of the coming leadership change. It will undoubtedly be resisted by other, more conservative, political factions.
I would be surprised if foreign individuals get access to the main A share market before the end of the decade. However, many Chinese companies are accessible through listings in Hong Kong and elsewhere, meaning that for now this would probably be less significant than easier access to India anyway.