China backs HK direct stock investment plan

(BEIJING) A landmark scheme to permit Chinese residents to invest directly in Hong Kong equities remains on track, Joseph Yam, head of the Hong Kong Monetary Authority, said on Thursday.

Yam said all departments of the Chinese government support the plan in principle and are in the process of drafting measures to control the risks that the scheme entails.

“We’ve had very fruitful exchanges of views as to where the risks are in terms of these proposals and how the risks should be managed,” Yam told reporters.

He said there was no timetable for the launch of the direct investment programme, dubbed “through train” in the media.

“Now it’s only when the risks are identified, and proper risk management measures are put in place, before these proposals can be implemented. We’ve had very good discussions on that,” Yam said.

The plan is an integral part of China’s strategy to encourage private capital outflows in order to relieve upward pressure on the yuan and give people a broader range of investment options.

Under China’s capital controls, residents may invest in overseas securities only through designated banks and fund managers. The amount of money that this Qualified Domestic Institutional Investors (QDII) may send abroad is strictly capped.

China’s currency regulator, the State Administration of Foreign Exchange (SAFE), announced plans for the direct investment programme on Aug. 20.

Hong Kong stocks immediately soared in anticipation of a wall of Chinese money, but it soon became clear that SAFE had not obtained the final consent of other parts of the government.

Premier Wen Jiabao confirmed on Nov. 3 that the plan was on hold pending a review of the risks involved.

Policy makers are variously worried that inexperienced Chinese savers could lose money to savvy global investors or that an exodus of mainland cash could undermine support for high-flying domestic shares.

Yam had meetings in Beiiing with the banking and securities regulators as well as with the central bank.

Peter Sullivan, chief executive of Standard Chartered Bank in Hong Kong, one of the bankers accompanying Yam, said discussions with the Chinese authorities had also touched on expanding the QDII scheme.