HONG KONG - China's latest financial opening promises go in one direction. Central bank governor Yi Gang on Wednesday pledged to lower ownership barriers for foreign financiers by the end of the year, and added that a stock trading link with London could open in the same timeframe. Meanwhile China’s securities regulator quadrupled the daily stock trading quota with Hong Kong, clearing the way for foreign funds to buy more mainland equities. In keeping with long-standing Chinese practice, the reforms will enable more foreign money to flow into China, but not the other way around.

The latest concessions appear designed to defuse trade tensions with the United States. In his speech on Tuesday, President Xi Jinping made conciliatory gestures toward U.S. President Donald Trump, which included repeating oft-made promises to ease access for overseas banks, brokerages, funds and insurers. Skeptics suspected Xi's pledge to implement the changes "as soon as possible" meant further delays. Yi’s willingness to commit to a timetable partly assuaged those concerns.

Meanwhile, the China Securities Regulatory Commission upped share trading quotas for the schemes that link the Shanghai and Shenzhen exchanges to Hong Kong to $8.3 billion per day. The move will make it easier for index funds that track MSCI’s emerging markets to add to 230 large-cap onshore stocks to their portfolios. A similar trading link with London may facilitate a further influx of European money into Chinese stocks and bonds.

Both moves leave China’s capital controls firmly in place, though. While foreign institutions will be allowed to own a bigger chunk of their domestic joint ventures, they will still be largely barred from offering offshore assets to Chinese investors. The stock connect schemes, meanwhile, are designed to prevent capital outflows: Chinese investors can buy Hong Kong stocks, but the funds are converted back into yuan when they sell. Besides, even the current quotas go largely unused; on Wednesday, for example, foreign investors used only 248 million yuan of the 13 billion yuan available to buy shares in Shanghai. China may be opening its financial market door wider than before, but it only opens inward.

CONTEXT NEWS

- People's Bank of China Governor Yi Gang said in a speech on April 11 that China will meet its pledge to raise ownership limits for foreign financial institutions and ease other investment restrictions by the end of 2018.

- Yi also said China hopes to set up a stock trading link with London by the same deadline. This would be similar to "stock connect" programmes currently running between bourses in Shanghai, Shenzhen and Hong Kong.

- The China Securities Regulatory Commission announced on the same day that it would quadruple daily quotas for the existing stock connect schemes from May 1. Daily quotas for Hong Kong-based investors buying stocks in Shanghai and Shenzhen will be boosted to 52 billion yuan ($8.3 billion). The quotas for investors buying Hong Kong stocks will be adjusted to 42 billion yuan. The move was widely expected ahead of the imminent inclusion of mainland stocks in MSCI’s emerging market indices.

(Editing by Peter Thal Larsen and Bob Cervi)

© Reuters News 2018