China first allowed foreigners to trade on the “mainland” markets


The people’s Bank of China first allowed foreign companies to trade their shares on the stock exchanges of mainland China — Shenzhen and Shanghai, follows from the annual report of the regulator in 2015, excerpts of which leads Reuters.

Until the last moment attempts to allow foreign companies to issue shares for circulation on the continental exchanges were poor, although progress has been made in opening up the local bond market to foreign investors.

As explained by an unnamed employee of the Central Bank, quoted by Reuters, the now foreign companies can issue bonds in yuan and sell shares in local markets, and the exchange of communication between Shenjane and Hong Kong will be set in the right time.”

The regulator will also consider the possibility to allow foreigners to issue Chinese Depositary receipts. Depositary receipts — the tool, allowing foreign participants to trade on local exchanges. Chinese companies have long used Depositary receipts of U.S. trading on U.S. exchanges.

To attract foreign investors in China in 2011, a program of Renminbi Qualified Foreign Institutional Investor (RQFII) that allows foreign investors to buy securities on the stock exchanges of mainland China over bought in Hong Kong, the yuan. In 2012, the Chinese Committee for control over the securities has increased the quota for foreigners from $30 billion to $80 billion In June 2016, for the first time China has provided quota for the purchase of its securities to American investors. Its volume amounted to $38 billion. 17 June, the head of the research Department of the people’s Bank of China, Liu Lei said that China will refuse the program, while achieving favorable conditions.”

To reduce the spread

As reported by Bloomberg, 21 June the Central Bank announced that it met with mainland banks to discuss the possibility of granting them the right to trade on the offshore market of the yuan. The aim of this measure is to accelerate the conversion of Renminbi in the onshore and offshore markets to a single value.

The yuan on the onshore market controlled by the state, whereas in Hong Kong the currency is freely traded. Against the backdrop of increasing exchange rate differences between offshore and onshore yuan in 2015, the population became more profitable to buy foreign currency on the free market of Hong Kong, where she at the time was trading nearly 2% lower, and sell it in Shanghai, where the rate is fixed on an upper limit set by the Central Bank. In 2015 the people’s Bank of China spent more than $400 billion in foreign reserves to buy yuan in order to contain the devaluation of the yuan. In January 2016, the spread reached a record high, after investors began to sell the yuan amid increasing concerns over its weakening, Bloomberg reported.

The difference between the rates on the mainland and offshore China markets was one of the reasons that prevented the recognition of the yuan a reserve currency alongside the US dollar, Euro, Japanese yen, and British pound sterling [the Renminbi will be adopted in the calculation of the basket of special drawing rights in October].

As noted by the Central Bank, on the background of how the regulator is trying to make the Chinese currency a more open market, Chinese banks need to improve the integration of the onshore and offshore markets. Details of the meeting, the Bank does not, stating only that it discussed the possibility of a “coordinated” participation “mainland banks traded on the offshore market. According to the representative of national Australia Bank in Hong Kong Christy tan, we can talk only about the participation in current operations, rather than on the operations connected with movement of capital. “While details are not presented, the key word is “consistently”. The potential effect of such a permission — reduction in the spread and subsequently the unification of the courses,” she said.

In 2014, the drop in the Chinese stock market triggered a massive outflow of foreign capital. In 2015 on the background of the depreciation of the yuan, slowing economic growth and falling of key indexes, the outflow reached $1 trillion. As explained to Agency Bloomberg — Bloomgerg Intelligence — the figure exceeded the data for 2014, more than seven times and was the worst time during the observation period, ongoing since 2006.

According to the Institute of international Finance, foreign investors withdrew in 2015, $674 billion, this year they will bring another $538 billion Amount, said the Institute, could rise in the event of concerns about a “disorderly” fall of the yuan.