DealBook: China Hints at Far Wider Welcome to Overseas Investors

HONG KONG — In what would be a drastic liberalization of China’s huge but still cloistered capital markets, the country’s top securities regulator said Monday that foreign investment could be allowed to rise as much as tenfold.

Citing the still-nascent levels of overseas participation in domestic stock markets — despite recent actions more than doubling the amount of money that foreign funds can invest there — Guo Shuqing, the regulator, hinted that 2013 could bring sweeping new measures to open financial markets in China, which has the world’s second-biggest economy, after that of the United States.

‘‘For our capital markets to mature, they must open more in the future,’’ Mr. Guo, the chairman of the China Securities Regulatory Commission, said Monday at a financial forum in Hong Kong. ‘‘Our goal is to make it easier for nonresidents to issue and trade securities in the domestic markets.’’

Shares in Shanghai leaped 3.1 percent Monday after Mr. Guo’s comments, as investors speculated that a wave of foreign cash could be set to hit the mainland stock markets. That added to a monthlong rally in which the benchmark Shanghai share index has rebounded 18 percent from early December, when it hit its lowest levels in more than three years.

With a total capitalization of about 20 trillion renminbi, or $3.2 trillion, China’s domestic stock market ranks as one of the biggest in the world, but it is also one of the most restricted among major economies.

Mr. Guo has been pushing hard to remove some of these investment barriers. In his comments Monday, Mr. Guo said that foreign investors hold only about 1.5 percent of the domestic share market by value. ‘‘I think at least we can increase that 10 times,’’ he said.

Some observers expressed deep skepticism at the remarks. ‘‘This is great headline stuff, but I don’t think it is particularly constructive, because you are not going to simply take the lid off and increase everything by 10 times,’’ said Fraser Howie, the co-author of ‘‘Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.’’

‘‘I would like to see proper, sensible moves to break down some of the barriers to entry and the actual movement of money,’’ Mr. Howie said.

A former chief foreign exchange regulator and former chairman of China Construction Bank who took the helm at the securities regulator in October 2011, Mr. Guo spearheaded a move last April that more than doubled the amount of Chinese shares that foreign investors could own, increasing the quota for so-called qualified foreign institutional investors to $80 billion from $30 billion.

However, by the end of December, only $37.4 billion of that quota had been actually allocated to investors, spread among 169 banks, brokerage firms and other financial institutions, according to a statement released Friday by the State Administration of Foreign Exchange.

Mr. Guo did not give specific details Monday of how China might raise foreign investment by such a large factor. But he hinted at one potential new program that is under discussion: letting in ordinary retail investors, most likely those from Hong Kong.

At present, China’s markets are open only to funds managed by brokerage firms, banks and other institutions. But Mr. Guo said he had been in talks during the weekend with several unidentified financial industry groups in Hong Kong about introducing a quota for so-called qualified foreign individual investors.

Details were sparse. But analysts said the general tone of the remarks was consistent with similar indications made recently by the central bank that support was growing for financial changes.

‘‘Clearly this demonstrates the resolve to accelerate financial sector reform, and part of the puzzle is to further liberalize the capital account,’’ said Steven Sun, the head of China equity strategy at HSBC in Hong Kong.

Article source: http://dealbook.nytimes.com/2013/01/14/china-hints-at-far-wider-welcome-to-overseas-investors/?partner=rss&emc=rss