CSRC Chairman's speech at Asian Financial Forum(3)

Finally, I would like to talk about our efforts to further open up the market.

Talking about the level of opening in China's capital market, if we use the current concepts, definitions and standards of some international agencies like the IMF to make the assessment, we will find that it is still rather low. But that is not true in reality. We conducted an assessment on the current situation in China, which found the 40 items under the 7 categories of the IMF's concept of capital accounts have all achieved certain levels of convertibility. No item is entirely inconvertible. The best examples include real-estate transaction by individual mainland residents in other countries, and overseas derivatives trading by mainland enterprises. The key point is that, the Residents Principle makes a great difference from the Citizens Principle. What's more, the control of foreign exchange may not always be that effective.

Let's look at this issue from another perspective. By the end of 2012, foreign shareholders have over 11 thousand trading accounts on the A-share market, holding an aggregate of 77.5 billion shares, accounting for 2.56% of total equity capital and 3.66% of total market cap on the A-share market. However, if we look at the number of companies they invest, over 200 QFII investors hold shares in 89.1% of all the listed companies, overseas shareholders 10.7% and foreign-invested-enterprises (FIEs) 75.1%. In addition, we have more than 1,000 companies listed overseas, among which H-share companies, red-chips and China-concept-companies listed in Hong Kong have 1.8 trillion US dollars in market cap. If we take into account all the domestic companies listed at home or abroad, 15% of their shares are held by overseas investors. Meanwhile, as you all know, the B-share market has been entirely open to foreign investors since it started. So, it's fair to say that, the actual level of opening in China's capital market is already very high. This is an undeniable truth.

We always believe, for a capital market to grow mature, it must have openness and competition. We also understand, in any economy in the world, capital account convertibility does not mean no regulation or supervision at all. In reality, fully free flowing capital does not exist. In the future, we will gradually achieve full convertibility of RMB under the capital account, and steadily open the capital market wider and deeper, while taking into account the actual demand of the capital market in China. Specifically speaking, the following measures will be taken.

First, while encouraging two-way FDI, we will also support two-way balanced portfolio investment. Intermediaries and exchanges at home and abroad can cooperate in creative ways. Our goal is to make it easier for non-residents to issue or trade securities in our market. We will further increase the investment quota, reduce the investment restrictions, and lower the investment threshold for QFII and RQFII schemes. Yesterday evening, we had a working dinner with some local institutions and they proposed to develop the Qualified Foreign Individual Investor scheme (the so-called QFII2) and RMB QFII2 (the so-called RQFII2). It is worth studying the feasibility of such proposal. Reforms in the B-share market will be stepped up, to help B-share companies operate and develop in a better manner. Overseas investors will be welcomed to participate in the development of the crude oil futures, metal futures and financial futures markets.

Second, allowing residents to issue or purchase wider range of financial instruments outside China. To a large extend, the Chinese residents now participate in overseas equities, futures and real-estate market, by sidestepping our regulations. On the one hand, we will support Hong Kong in developing an offshore RMB centre; on the other hand, we will gradually expand channels for residents to directly enter overseas market. In this way, individual residents' capital account transactions can be more convenient and better regulated. For example, we will improve the QDII scheme, launch pilot program on Qualified Domestic Individual Investor(or the so-called QDII2)scheme, ease the rules for domestic companies to list overseas, and support qualified domestic enterprises to raise funds abroad.

Third, intermediaries should provide better services to cross-border investment. Both domestic and overseas financial institutions, especially securities companies, need to improve their services to cross-border investment by residents and non-residents. More innovative products and services should be launched to meet their clients' demand. Foreign investors are allowed to hold up to 49% of shares in joint venture securities companies and futures firms. In the future, more foreign stakes will be allowed to invest in domestic securities and futures industry, and more businesses will be open to the joint ventures. Meanwhile, domestic intermediaries are encouraged to develop overseas business. Futures brokerage firms are able to develop overseas brokerage business in a pilot program.

Since last year, our cooperation with Hong Kong has reached a new level. On the one hand, we have made it more convenient for Hong Kong investors to access the mainland's capital market. On the other hand, we have eased the rules for mainland companies to list in Hong Kong, and supported the issuance of RMB-denominated bonds by mainland institutions and enterprises in Hong Kong. A pilot program has been successfully kicked off for B-to-H share conversion. A joint venture has been set up by Shanghai, Shenzhen and Hong Kong's stock exchanges, which strengthened the exchange of information, product, technology and personnel. As a next step, we will assess the feasibility of raising the stakes Hong Kong investors can hold in joint ventures in the securities, futures and mutual fund industries. We will support the growth of cross border ETFs and the development of cross border bond market. We can also find ways to achieve mutual recognition of registered funds between Hong Kong and the mainland, cross-border distribution and cross-listing of products on the exchanges both in Hong Kong and Shanghai. In one word, we will continue to provide substantial support for Hong Kong as an international financial hub.

Ladies and gentlemen, opening up the capital market is and will always be our long term policy. We welcome friends from overseas to come to our market, and join us in developing a more open and inclusive capital market in China.

Thank you.