Friday, 7 March 2008

Chinese allowed to buy shares abroad?

In a move that could result in a fall in Chinese domestic share prices, the FT today report on the possible liberalisation of share trading in China with Chinese citizens being allowed to buy shares in London, Hong Kong or Tokyo.

That would unleash a wave of money looking for safe havens. This article mentions the fear for local Chinese shares although the government seems keen to push ahead.

China signals it could ease share curbs [FT]

The head of China’s central bank said on Thursday that Chinese citizens could be allowed to invest directly in stocks in London, Tokyo or Singapore as well as in Hong Kong.

A plan to allow the right to invest directly in Hong Kong – which was abruptly suspended late last year – is still on track but could be modified to include markets beyond the territory, Zhou Xiaochuan, governor of the People’s Bank of China said.

He was speaking on the sidelines of the annual meeting of the National People’s Congress, China’s legislature.

The comments from Mr Zhou and other senior officials indicate that Beijing remains committed to reducing controls on offshore investment by its citizens in spite of concern among other parts of the government that such a move could trigger a collapse in the mainland stock market.

Mr Zhou refused to give more details but said that Chinese investors should be allowed to invest directly in other global markets, including London, Japan and Singapore.

“The controls and regulatory approvals we have implemented in the past [on capital flows in and out of China] will be gradually reduced and abolished,” Mr Zhou said. “We will support overseas investments by domestic residents.”

The central bank is trying to encourage outflows of capital from China to relieve pressure on the renminbi and reduce excess liquidity that is feeding rising inflation.


Mr Zhou’s Thursday comments echoed those of Dai Xianglong, chairman of the National Council for Social Security Fund and until last month mayor of Tianjin, who told the Financial Times last week that the government was still planning to allow individuals to convert renminbi into foreign currencies and make investments in overseas stock markets.

And on Wednesday, Xiao Gang, chairman of Bank of China, also said his bank was working on technical details of the scheme.

In a follow up post, the FT also report on the massive revenues that the Chinese government earnt from its share purchase tax.

Beijing reaps rewards of shares tax [FT]

The increase in a turnover tax on share trading introduced at the height of China’s stock market boom last year has delivered the government a windfall of Rmb182bn in new revenues.

Most of the money, equal to nearly half of the country’s official defence budget, was collected in just seven months following the increase in the stamp tax from 0.1 per cent to 0.3 per cent on each share trade last May.

According to figures released on Wednesday, Beijing collected a total of Rmb200.5bn ($28.2bn, €18.5bn, £14.1bn) in stamp tax on share trading for all of last year, compared with Rmb17.9bn in 2006, an increase of 1,000 per cent year on year.

The surge in collections made the share market nearly as bountiful a source of revenue for the Chinese taxman as the nation’s 1.3bn citizens.



Anonymous said...

So Zhou Xiaochuan will soon loose his job ? It is impossible for China to let Chinese investing outside before China knows what to do with yuan.

Unknown said...

I think the Chinese government has to allow capital outflow sooner or later, for the sake of the Chinese economy.