China has stepped up plans for liberalising its market, after reports reveal that the country is to allow foreign hedge funds to tap into its wealthy citizen base.
China has eased restrictions on foreign investors seeking to put their money into the country’s markets, Beijing’s latest financial sector reforms as it seeks to boost a slowing economy.
In a move that will dismantle regulations that have previously prevented foreign players accessing domestic investors, the reforms will mean these firms will be able to access domestic investors looking to invest into funds overseas.
The new mechanism will be called the Qualified Domestic Limited Partner programme and will have an initial investment ceiling of $5bn. The government will invite hedge funds to apply for licenses to register in Shanghai. Sources say that there is already a waiting list.
The securities regulator late Friday published new rules allowing qualified institutional investors to hold up to 30 percent of shares in any domestically listed company, up from 20 percent.
The new rules will make it easier for foreign groups to obtain the status of qualified institutional investor, and thus enter the Chinese market, said the China Securities Regulatory Commission.
Foreign investors will now also be able to put their money into China’s interbank bond market and high-yield bond market, said the regulator.
The steps should lead to “more long-term foreign investment on China’s capital markets,” according to a statement from the regulator.
China has introduced a series of reforms to open up its financial markets in recent months in the hope of boosting its economy, which grew 7.6 percent in the second quarter, its slowest pace for more than three years.
Authorities hope to modernize the economy in which a dominant role is still played by state-run banks and huge public companies.
Fresh foreign capital could inject much-needed vigor into the country’s markets. The benchmark Shanghai index ended Thursday at 2,126.00 points, its lowest close since March 9, 2009, according to Dow Jones Newswires.
New applications for foreign investors have been sped up recently, with the securities regulator approving 37 new qualified investor licenses for the first six months of this year compared with 29 for the whole of last year.
These reforms are the latest significant steps that China has taken this year, in aggressively moving towards deregulating its market and making it more open to foreign participants.
It has already shocked the market with two interest rate cuts in under a month and it has boosted the quota for qualified foreign institutional investors by 166 percent this year.