China is moving closer to allowing certain foreign investors to set up accounts to directly invest in the country's blue-chip A-share market, according to the China Securities Regulatory Commission (CSRC) on Sunday.
If the move materializes, it would be a "great leap" in the country's efforts to further open up its financial markets and lift cross-border investment restrictions in the equity market, an expert noted.
The State Council, China's cabinet, has approved a plan to allow two types of foreigners to set up accounts with the A-share market, and the plan has been published for a period of public comment, the CSRC said in a statement.
Under the plan, foreigners who are working in the Chinese mainland and those who are working overseas but for an A-share market listed company and participate in equity incentive programs would be allowed to set up accounts that would allow them to directly invest in the market.
"This is a huge step. It would be the first time that China allows individual foreigners to invest in the domestic stock market. It is a great leap in institutional reform and financial opening," Dong Dengxin, director of the Financial Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Sunday.
Currently, individual foreign investors who are interested in investing in the Chinese mainland stock market have to participate in programs such as the Shanghai-Hong Kong and Shenzhen-Hong Kong Connect.
The new move "is of great significance for further expanding the channel for capital into the stock market, optimizing market structure and improving the degree of openness and globalization of the capital market," the CSRC statement said.
Apart from improving openness and globalization of the domestic financial market, the move is also aimed at attracting foreign talent to work in the Chinese mainland or for Chinese companies, Dong noted.
But allowing individual foreign investors to directly invest in the domestic stock market could pose more challenges for regulators than institutional investors because "it is much harder to track individuals than entities," Dong said. "If not managed properly, it could pose some risks."
But given that only two types of foreign individual investors are allowed to invest, "this is very manageable," Dong said, adding that there might be a limit on how much each individual could invest within a certain period of time.
The CSRC also said in the statement that for the two types of qualified foreign individuals to invest in the A-Share market, the securities regulatory authority in the foreigner's country of origin must have established a cooperation mechanism with the CSRC.
