China's rising capital markets

But the two Chinese firms earned the highest IPO fees in Asia Pacific last year, buoyed by China’s position as the world’s biggest IPO market. According to Pricewater-house-Coopers, new offerings in Shanghai and Shenzhen raised 286 billion renminbi ($45.5 billion) in 2011 (the next biggest market was Hong Kong).

A decade from now, this figure may seem very modest. Shanghai, with the Chinese government’s backing, wants to more than double its trading volumes over the next four years, becoming by 2020 a global financial powerhouse, consistent with China’s economic strength.

China typically holds a tight grip on its securities and foreign exchange markets, with companies seeking capital needing to take account of the regulators’ wishes at that time. However, the China Securities Regulatory Commission vice chairman, Yao Gang, said in January that the regulator would this year simplify procedures and lower thresholds, making it easier for Chinese companies to list overseas.

Already over the past few months we have seen a significant loosening in government controls. Among the measures taken:    

_ Since October last year, Beijing has granted around $1 billion in quotas for foreign investors to invest in capital markets following a five-month freeze on approvals.

_ Beijing is planning to relax controls on Hong Kong and overseas listings for Chinese companies, and will push for shares of renminbi-denominated shares in the offshore renminbi market. 

_ The scheme introduced last year that allows Hong Kong subsidiaries of Chinese brokerages and fund houses to raise offshore renminbi to invest domestically, known as the Renminbi Qualified Foreign Institutional Investor program (“RQFII”), will be expanded. Under this scheme, offshore funds can launch 80 percent in bonds and 20 percent in equities subject to an overall cap of 20 billion renminbi. 

_ Various existing schemes that allow investors to move their money in and out of Chinese capital markets, (among them “QFII” and “QDII”), will have their caps raised.

China’s moves to liberalize its capital markets parallel the opening up of the capital markets in ASEAN ahead of the ASEAN Economic Community’s introduction in 2015. 

The effect of this liberalization will be to facilitate trade, investment and capital flows within the region and, in turn, this will further strengthen the growing economic links between China and ASEAN.

 

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