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Towards free markets

Knowing how to ensure safe, stable and well functioning markets is paramount to understanding where markets stand in terms of resilience

January 11, 2016 | Sam Ahmed

China’s capital account liberalisation has been a topical subject in the financial markets over the past few years. While institutions globally are taking a keen interest in any announcement related to liberalisation moves, it is clear that the Chinese authorities are adopting a more measured and deliberate approach to any liberalising policy shifts whilst seeking to attain full convertibility of the RMB.

This deliberate approach has been translated into several policies including: the Shanghai-Hong Kong Stock Connect, that permits investors greater mutual access to investing directly in each others’ markets; the Shanghai Free Trade Zone (FTZ), which currently allows for free cross border movement of RMB; and other initiatives such as the Qualified Foreign Institutional Investor (QFII) and the Renminbi Qualified Foreign Institutional Investor (RQFII) schemes. All are designed to gradually open up Chinese markets to foreign investors. Tony Wang deputy general manager of global markets at Bank of China (Hong Kong), speaking at the RemninbiWorld 2015 conference accurately summed up the Chinese government’s policy towards liberalising the capital account by stating “The ultimate solution is for China to open the capital accounts one by one, then the RMB positions on both sides will equalise. But you have to be really cautious. You have to do it step by step.”

Shanghai-Hong Kong Stock Connect
The Hong Kong-Shanghai Connect, established in October 2014, was the first initiative of its kind aimed at allowing investors mutual access to both stock markets. As a pilot scheme, authorities on both sides exercised conservative policies placing limits on investors, eligible products as well as overall daily quotas. For the first phase, only mainland investors possessing RMB500,000 ($77,000) in their investment accounts were eligible. For the Hong Kong investor, there was no such quota although they could only trade certain stocks...

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Categories:

China, Market Developments, Markets & Exchanges, Rmb

Keywords:China, Liberalisation, Hong Kong-Shanghai Connect, RMB, SFTZ, RenminbiWorld 2015, PBOC, Free Trade