China is working on simplifying foreign exchange-related procedures amid intensified efforts to open up its financial market, thereby enhancing the global appeal of yuan-denominated assets.
The State Administration of Foreign Exchange (SAFE) is soliciting public opinion on a draft document that scraps early-stage payment restrictions on outbound direct investments and rolls back requirements on the outflow of funds for the dollar-denominated qualified foreign institutional investor scheme (QFII) and its yuan-denominated sibling, RQFII, among other optimized procedures.
China has opened up to various degrees on over 90 per cent of capital account transaction sub-categories compiled by the International Monetary Fund, according to the SAFE.
The country now pursues two-way financial opening up enabled by the qualified foreign institutional investor system, and direct market participation from foreign investors, as well as connectivity schemes like the Shanghai-Hong Kong and Shenzhen-Hong Kong stock connects, the Bond Connect program and Swap Connect.
“The country’s negative list for foreign access to its financial services sector has been generally emptied, and pre-establishment national treatment has been realized,” said Guan Tao, an economist with BOC International.
Capital flow into the financial market is becoming smoother as quota restrictions on financial trading have been eased over the years, he said.
Persistent efforts to open up the financial sector have helped attract foreign investors, whose holdings of Chinese mainland securities had shown a 1.8-fold increase by the end of June 2023 compared with the end of 2017, SAFE data showed.
Overseas holdings of Chinese mainland bonds increased for the second consecutive month in October by over 40 billion yuan (about 5.6 billion U.S. dollars), taking the total of such holdings to 3.24 trillion yuan.
The launch of a series of financial tools like the Swap Connect scheme this year has given overseas investors more means of risk management, while measures to foster cross-border trade and facilitate investment have also helped encourage overseas participation in the Chinese capital market, said Wang Qing, an analyst at Golden Credit Rating.
In the medium to long term, the investment worthiness and risk-haven feature of yuan-denominated assets will further assure foreign investors amid continued economic growth and financial opening up, analysts say.
The SAFE said it is ramping up forex-related policy support regarding stocks and bonds issuance in the domestic market related to panda bonds and the trading of stocks of red chip companies.
It also vowed to welcome more foreign-funded financial institutions and long-term capital into the Chinese market or expansion of their businesses here, through measures like steadily advancing pilot programs of cross-border investment by equity investment funds.
