Beijing Relaxes Limits on Foreign Investments

By Bradsher, Keith | International Herald Tribune, March 22, 2012 | Go to article overview

Beijing Relaxes Limits on Foreign Investments


Bradsher, Keith, International Herald Tribune


Chinese officials are making it easier for foreign investors to put money into the Chinese stock market, indicating that they want to counter an accelerating flight of capital.

The Chinese government has begun making it much easier for foreign investors to put money into the Chinese stock market and other financial investments, a slight relaxing of more than a decade of tight capital controls.

The change, not announced publicly but disclosed by some private money managers, indicates that Chinese officials are eager to counter a rising flight of capital from the country, a worsening slump in real estate prices, a weak stock market and what is at least a temporary trade deficit caused by a steep bill for oil imports.

Those concerns have evidently started to offset fears of the potentially inflationary effects of big inflows of foreign cash.

Chinese securities officials made a series of phone calls to top fund managers outside China late last week, telling them of the relaxation of the capital restrictions, according to several money managers.

But if the fund managers wanted to increase their requested allotments for investing in China, they were told they would have to answer almost immediately -- a sign of the government's haste to come up with a plan to reassure financial markets.

"It literally was phone calls coming in at 4 and you had to give an answer by 5:30," said the chairman of a financial company heavily invested in China. He insisted on anonymity to avoid offending regulators.

Easing the path of foreign money into China could help offset a nascent exodus of investment money there and stem the recent weakness of the Chinese currency, the renminbi. The renminbi's weakness is making Chinese manufacturers even more competitive in foreign markets.

Investment executives say officials at the China Securities Regulatory Commission, in coordination with foreign-exchange officials, had informed them in the phone calls last week that the government would approve all of their past requests to increase certain types of foreign investments and would even let them double their total invested funds.

The 147 financial institutions with so-called qualified foreign institutional investor rights in China include big banks like Goldman Sachs and endowment funds like Yale University's.

Regulators indicated that they would double the overall cap on foreign investments to about $60 billion, one money manager said; the cap has been $30 billion for several years. Until now, Chinese regulators have dribbled out each increase in authorized foreign investment, a few hundred million dollars at a time.

While still a tiny amount, compared with the combined value of the Shanghai and Shenzhen stock markets or relative to the volume of China's international trade, raising the foreign investment cap is the latest signal that Beijing is worried about a potentially prolonged weakness in the renminbi.

The issue is politically volatile in Washington, where Democrats and Republicans alike have been calling for a stronger Chinese currency as a way to limit China's large bilateral trade surplus with the United States.

The U.S. Treasury secretary, Timothy F. Geithner, complained at a congressional hearing Tuesday that China still had "some ways to go" in allowing its currency to appreciate against the currencies of its main trading partners.

Allowing more foreign money into China could help stabilize the stock and real estate markets there, as the political environment is unsettled over the dismissal last week of Bo Xilai, who had been a rising political star in the country, as the Communist Party secretary in Chongqing and over the approach next autumn of a once- in-a-decade change in the country's top leadership.

The Shanghai stock market dropped 1. …

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