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Shanghai. China is expected to finish preparing rules this year allowing foreign companies to list in Shanghai and is considering letting offshore yuan be invested in the city’s capital markets.

Shanghai, which aims to become a global financial hub within a decade, also plans to launch cross-border exchange-traded funds this year and to allow foreign investment in local-currency private equity funds, director general of the Shanghai Financial Service Office Fang Xinghai said on Friday.

“We’re very confident that in terms of the size of the financial market, we can become one of the top three, perhaps, in the world this decade,” Fang said. “In terms of sophistication and the free flow of capital we still have a lot of room to improve,” he said.

Shanghai is intensifying efforts to deregulate its capital markets to become an international financial center to rival New York and London by 2020.

It took a landmark step this month with the launch of stock index futures, which offer limited participation initially but are set for steady expansion.

China’s securities regulator has prepared draft rules that will allow foreign investors to buy the futures under the country’s Qualified Foreign Institutional Investor scheme, sources familiar with the situation said on Friday.

China is also drafting rules that would allow foreign companies to sell shares publicly on the Shanghai Stock Exchange.

Fang said he expected the rules to be ready by the end of this year, adding that the first batch of listings would probably be foreign firms that are well-known in China and have local operations.

These listings would “allow Chinese investors to buy into the world’s best companies and improve investment returns,” Fang said. “They can also promote the clout and influence of China’s securities market.”

Shanghai is also considering easing capital controls to allow overseas yuan to be invested in domestic bonds, equities and interbank instruments, to promote international use of the Chinese currency, Fang said.

China has already allowed limited use of the yuan in regional trade settlements, so allowing access to the domestic capital markets by yuan held offshore would make the currency more attractive by creating a new investment channel, he said.

Shanghai will also broaden investment pipelines for domestic investors this year by launching cross-border ETFs, exchange-listed funds that track a portfolio of overseas stocks.

In addition, it is drafting rules to allow foreign investors to invest in yuan-based private equity funds under a proposed Qualified Foreign Limited Partner scheme, Fang said.

QFLP would enable selected overseas institutions to convert foreign currencies into the yuan within an allotted quota, and then invest in local-currency private equity funds.



Reuters