Chinese Financial Officials Turn Salesmen
Chinese financial officials from the Shanghai and Shenzhen stock exchanges have begun a tour around Europe, Japan and the United States in an attempt to attract foreign investors to China’s stock market. The representatives have been meeting daily with around 10 different foreign institutions, including insurance companies and pension funds. This marks a fundamental shift in philosophy from a couple of years ago when Beijing feared that foreign investors will flood the country with cash and decided to restrict them through a strict quota system.
Before 3 April, the combined total amount allowed for international fund managers to invest in China’s onshore capital markets was only $30 billion (£18.5 billion). In order to loosen the strict capital controls, the Chinese Securities Regulatory Commission (CSRC) increased the maximum amount to $80 billion (£50 billion) and expanded the qualified foreign institutional investor (QFII) scheme.
Two months later, the CSRC made another compromise with its approval rules and allowed fund managers with a minimum of $500 million (£308 million) under their management to participate in its stock market. The previous limit was set at $5 billion (£3.08 billion) and excluded everyone but the largest global fund houses. Many, including Fraser Howie, an expert on Chinese finance ,believed this would be a game-changer for the Shanghai and Shenzhen stock markets.
!m(/uploads/story/435/thumbs/pic1_inline.png)“This is the most significant move since the QFII scheme started. It’s opened the door for bringing in hundreds more foreign investors,” Mr Howie optimistically remarked in June.
Contrary to expectations, five months later the number of applications from investors wanting to dive into the Chinese equities market has not increased significantly. Chinese policymakers believe the quiet response is a result of the global economic slowdown compounded with China’s diminished growth prospects.
But even in better economic times, Chinese stocks have not been a worthy investment. The Shanghai Composite Index, China’s main index, dropped by 14 percent in 2010, 23 percent in 2011 and retreated another 6 percent up to September of this year. Analysts point out to rampant inside trading and bad corporate governance as significant reasons for the disappointing performance.
China’s reforms in its financial sector have been propelled mainly by Guo Shuqing, who was appointed chairman of the CSRC late last year pledging to open the country up to foreign institutional investors and get rid of all forms of insider trading. “His focus on speeding up reform of the market, his emphasis on corporate governance and his advocacy of institutional investors all accords with the priorities of sophisticated overseas investors,” remarked a CSRC senior adviser.
Mr Shuqing has made sure to facilitate the process of approval for new foreign members on the Chinese stock markets as much as possible including the implementation of electronic applications. Despite his efforts, the Shanghai market is stuck and retail investors still make up around three-quarters of daily turnover. The policymaker’s recent more aggressive steps reflect the amplifying pressure on him from the approaching once-in-a-decade transition of leadership.