Wednesday, August 22, 2007
China’s capital controls
Published: August 21 2007, FT
Match that, Ben Bernanke. While the US and other central banks try to restore confidence in financial markets, China is preparing to unleash trillions of dollars of investment in global assets.
To be sure, Beijing’s move to allow individuals to buy unlimited equities offshore carries caveats. All purchases must be made via the northern city of Tianjin and buyers will be restricted to Hong Kong stocks. But these limitations should prove temporary, if the pilot scheme goes smoothly. Indeed, some analysts reckon non-Tianjin residents will be able to participate from the off.
Add in the fact that the move was taken ahead of the upcoming Party Congress meeting and this smacks of regime change of the highest order. Allowing unlimited renminbi to leave the country – a not unappealing prospect for the $2,200bn idling in deposits – is the boldest step yet in the march towards capital account liberalisation.
So why now? There are several possibilities, including increasing desperation at pressure on the renminbi and inflation – and a contemporaneous reluctance to raise interest rates. It is also an admission, of sorts, that the existing scheme for offshore investment is a flop.
But it does demonstrate confidence. Having presided over one of the world’s best-performing markets, the authorities are allowing investors to liquidate their holdings and buy the same stocks across the border where the 40-odd dual-listed shares are on average 75 per cent cheaper.
The rub is that most Chinese investors are likely to continue investing in momentum at home rather than value across the border. It is also worth bearing in mind that, tricky though they may be to execute, policy reversals are always possible; say, if too much money heads for the exit. That may explain why Beijing was sufficiently confident to pull this off – but should it not stop investors in the Hong Kong market from feeling supremely smug. ¶ 3:26 AM
Match that, Ben Bernanke. While the US and other central banks try to restore confidence in financial markets, China is preparing to unleash trillions of dollars of investment in global assets.
To be sure, Beijing’s move to allow individuals to buy unlimited equities offshore carries caveats. All purchases must be made via the northern city of Tianjin and buyers will be restricted to Hong Kong stocks. But these limitations should prove temporary, if the pilot scheme goes smoothly. Indeed, some analysts reckon non-Tianjin residents will be able to participate from the off.
Add in the fact that the move was taken ahead of the upcoming Party Congress meeting and this smacks of regime change of the highest order. Allowing unlimited renminbi to leave the country – a not unappealing prospect for the $2,200bn idling in deposits – is the boldest step yet in the march towards capital account liberalisation.
So why now? There are several possibilities, including increasing desperation at pressure on the renminbi and inflation – and a contemporaneous reluctance to raise interest rates. It is also an admission, of sorts, that the existing scheme for offshore investment is a flop.
But it does demonstrate confidence. Having presided over one of the world’s best-performing markets, the authorities are allowing investors to liquidate their holdings and buy the same stocks across the border where the 40-odd dual-listed shares are on average 75 per cent cheaper.
The rub is that most Chinese investors are likely to continue investing in momentum at home rather than value across the border. It is also worth bearing in mind that, tricky though they may be to execute, policy reversals are always possible; say, if too much money heads for the exit. That may explain why Beijing was sufficiently confident to pull this off – but should it not stop investors in the Hong Kong market from feeling supremely smug. ¶ 3:26 AM
