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
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
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
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
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. …