China Outlines Plan to Ease Capital Curbs, Push Yuan

China outlined plans to allow citizens to invest in overseas stocks and property as well as let the nation’s companies sell yuan-denominated shares abroad, furthering efforts to internationalize its currency.

Chinese nationals will be able to buy equities and real estate via a Qualified Domestic Retail Investor scheme, Wang Dan, a deputy director general at the central bank, said today at a conference in Beijing. There are also talks under way to give locals access to yuan capital markets in Singapore and London, she said, without giving any start dates or sizes for the programs. Agricultural Bank of China Co. said today it was looking into arranging sales of yuan-denominated Global Depositary Receipts in London for Chinese companies.

China, which is also scheduled to start an exchange link between Hong Kong and Shanghai this month, is seeking to give its citizens more investment channels amid a slumping property market and increased risks from local wealth-management products. The world’s second-largest economy is also trying to promote use of the yuan, which ranked seventh for global payments in August from 12th a year earlier.

“It’s a continuation of yuan internationalization and capital-account liberalization,” said Yii Hui Wong, Singapore-based currency and rates strategist at BNP Paribas SA. “Singapore is a hub for Southeast Asia and the U.K. is in a different time zone altogether, connecting China to European investors. They won’t just have Hong Kong and be dependent on Hong Kong only.”

Through Train

QDRI was the name used for a program known as the through train, announced in August 2007 and then later abandoned, that would have allowed Chinese nationals to buy Hong Kong stocks directly. The People’s Bank of China said in January 2013 it had started preparations for a trial expansion of the Qualified Domestic Individual Investor program to enable some individuals to invest in capital markets abroad.

Singapore and London won quotas in the past year for their financial companies to invest yuan in China’s domestic securities and clearing banks were appointed in both financial centres. The currency began direct trading versus the British pound in June, and a similar arrangement with the Singaporean dollar is planned after a deal was signed a year ago. Hong Kong still holds the world’s largest pool of yuan savings outside of China, with deposits totaling 937 billion yuan ($153 billion) at the end of August.

The currency strengthened 0.14 percent to close at 6.1305 per dollar in Shanghai, while the offshore rate in Hong Kong advanced 0.15 percent to 6.1343, according to data compiled by Bloomberg.

Depositary Receipts

Agricultural Bank of China, the nation’s third-largest lender, has set up a team to work with securities firms in preparing depositary receipts that will be listed on the London Stock Exchange, Li Zhenjiang, an executive vice president, said today at the conference in Beijing. The securities will be denominated in yuan and backed by shares listed in China’s domestic market, the banker said.

“This is conducive to accelerating the internationalization of the yuan” Li said. “It will help the Chinese capital markets to further open up, and better connect with the markets of the advanced economies.”

Shadow Banking

The overseas investment programs China plans for its citizens will provide the nation’s investors with more alternatives to “riskier” shadow banking products, according to Nathan Chow, an economist at DBS Group Holdings Ltd. in Hong Kong. The outstanding value of wealth-management products in China rose 24 percent to a record 12.7 trillion yuan in the first half from the end of last year, the China Banking Wealth Management Registration System said in August.

China’s home sales slumped 11 percent in the first eight months of 2014 from a year earlier, official data show. Home prices dropped in August from July in 68 of 70 cities tracked by the government, including in Beijing and Shanghai. That was the most since January 2011, when the statistics bureau changed the way it compiles the figures.

The Shanghai Composite Index of stocks rose 0.3 percent, climbing for an eighth straight day. The benchmark index has gained 13 percent this year on speculation reform measures will stem an economic slowdown as an exchange link with Hong Kong draws funds from abroad.

“As China’s money supply keeps increasing and the property market shows signs of bubbles, a new pool needs to be found to soak up the money,” Wu Kan, a fund manager at Shanghai-based Dragon Life Insurance Co., said by phone today. “These measures will also set the stage for a full opening of the capital account, which is an important goal for china’s ongoing financial reform.”

— With assistance by Fion Li, Haixing Jin, and Kyoungwha Kim

(Corrects second paragraph of a story that ran yesterday to show Agricultural Bank is looking to arrange depositary receipts for other companies)
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