China May Be About To Liberalise Foreign Exchange Rules

by Mary Swire, for LawandTax-News.com, Hong Kong

28 May 2003

After Hong Kong's Andrew Sheng, chairman of the Securities and Futures Commission, met senior Chinese financial officials last week in Beijing, sources said that liberalisation of the mainland's foreign exchange policy was imminent.

Sheng met People's Bank of China governor Zhou Xiaochuan, head of the State Administration of Exchange Controls Guo Shuqing, China Securities Regulatory Commission chairman Shang Fulin and China Banking Regulatory Commission chairman Liu Mingkang, and high on the agenda was the issue of the massive foreign currency balances held by Chinese residents, which at present they can't legally invest in external assets.

Mainland individuals and corporations are said to hold more than US$150 billion in foreign exchange, and the government itself has more than US$300bn. After the Asian financial crisis in 1997, Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong led a campaign to launch a 'qualified domestic institutional investors' (QDII) scheme which would have allowed Chinese corporate investors to deploy their foreign exchange assets into Hong Kong shares; but the scheme was resisted by government officials who worried, probably with reason, that the scheme would accelerate capital flight.

Now, it seems likely that mainland residents will soon be allowed to invest in the Hong Kong stock market as well as those of foreign countries, and will be allowed direct access to Hong Kong's H shares and red chips, which they can currently buy only via offshore nominee accounts and in other illicit ways.

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