Reform Measures Announced For Shanghai FTZ, But Execution Might Be Slow

Date: 2015-11-03

The People’s Bank of China (PBOC), Ministry of Finance, China Securities Regulatory Commission, China Banking Regulatory Commission, China Insurance Regulatory Commission, and Shanghai Municipal Government have jointly published guidance to deepen financial reforms in the Shanghai free trade zone (FTZ).

Highlights include:
• Improve the convertibility of renminbi in the FTZ and expand cross-border usage of the renminbi. The Chinese government has promised to improve the convertibility of the renminbi under the capital account, expand the functions of free trade accounts, and broaden the backflow channel of offshore renminbi. Foreign and domestic companies with entities registered in the FTZ will be allowed to issue renminbi bonds to raise funds for usage in overseas and domestic markets.

The scheme of qualified domestic individual investors (QDII2) was highlighted in the announcement. This scheme will allow qualified individual investors to purchase foreign real estate and financial assets. However, it is said that this scheme is undergoing studies, which might mean that its execution might be delayed.

• Liberalising financial sectors within the FTZ. The Chinese government will support eligible private companies in establishing financial institutions such as privately-owned banks, finance leasing, financial, auto finance and consumer finance companies. Foreign financial institutions will be allowed to enter health insurance, securities, and investment advisement sectors. However, the existing 49% limit for foreign stakes in securities companies still remains.

• To build the internationalised financial market in Shanghai FTZ. The government will support the China Foreign Exchange Trading Center, Shanghai Gold Exchange, Shanghai Stock Exchange and Shanghai Futures Exchange to develop their businesses within the FTZ. Cross-border transaction platforms and settlement systems will be the priorities in the construction of the internationalised financial market. These exchanges are also encouraged to cooperate with foreign exchanges to promote renminbi denominated transactions around the world. (UOB)

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