China to Allow Individual Share Investments Outside Mainland

Move should promote basic balance of international payments says government.

China announced on Aug. 20 it will for the first time allow individuals to directly invest on stock markets outside the mainland, with a trial to be launched for the buying of Hong Kong shares. The State Administration of Foreign Exchange said that the pilot scheme will be launched in the Binhai New Area in the city of Tianjing in northern China. The agency said the move was "an important measure to deepen foreign exchange management reform, expand out flowing channels for foreign exchange funds and promote basic balance of international payments".

Individuals are currently only allowed to invest overseas through products offered by banks, brokerages, insurers and fund management companies under the Qualified Domestic Institutional Investor program.

Analysts noted the move as part of recent efforts by China to open its capital account and in turn ease the increasing pressure created by the country's bulging foreign exchange reserves, the largest in the world. "The government hopes such rules would encourage capital outflows and slow down the increase of its foreign exchange reserves," said Li Wenhui, a Shenzhen-based analyst with Huatai Securities. But Li said that given recent fluctuations on overseas markets, individual investors were likely to leave their money for the time being in domestic shares, which have emerged relatively unscathed due to capital controls.

Copyright Agence France-Presse, 2007

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