China’s market stability as important as foreign participation

The continuing liberalisation of Chinese markets must be balanced with keeping its market and currency stable, according to the head of securities services at Citi.

Speaking at a roundtable event, Cindy Chen spoke of how the China’s markets are becoming more open but a balance must be struck in order to protect local markets.

“China does want to open up and has shown a lot of evidence of this in the past 12 months to address capital mobility issues and restrictions.

“At the same time, there is also a need to balance the need of the local market in terms of stability in equities, the stock market and currencies.”

“Through stability, you can attract flow as right now aspects of the market is quite volatile so it needs to consider this when it makes this transition,” said Chen.

Chen’s suggestion comes at a time of increased market liberalisation with previous stringent regulations being loosened.

Under the previous qualified foreign institutional investor (QFII) programme, which began in 2002, applications for a daily quota would take months to receive approval.

Over the past year regulations under the QFII such as a lock up period and an injection period on the QFII quota have been removed.

In August, the Chinese government also approved the Shenzhen-Hong Kong Stock Connect trading link to operate alongside the existing Shanghai-Hong Kong equivalent in a bid to create a better regulated trading environment and a more extensive capital market.

Such changes have also lead to increased investor appetite with a Standard Chartered white paper from May 2016 finding that 67% of investors expect to increase their level of investment over the next 12 months with 0% saying they would reduce their participation.

Chen also suggested that the changes were part of the deceleration of China’s wider economy.

“China is slowing down from a traditional economy point of view, the banking sector is slowing down and the manufacturers are slowing down. “

“As a result, the economy can’t grow into double digit or even high single digits, its down to around 6% GDP so this can be sustained by moving to a new high-tech economy,” said Chen.

Speaking to Global Custodian last month HSBC’s head of China sales and business development, EMEA, securities services, Florence Lee also suggested that the Chinese market would continue to push towards a new economy while targeting institutional investors.