China took steps to open the door wider for U.S. investors to buy Chinese securities and to promote more trading of the Chinese yuan in the American market.
Chinese officials, after two days of high-level talks with their U.S. counterparts, announced Tuesday that U.S. investors are being offered a quota of 250 billion yuan ($38.1 billion) to buy Chinese stocks and bonds. They also said that Beijing and Washington will designate one Chinese and one U.S. bank as clearing banks in the U.S. for settling yuan transactions.
Both moves should facilitate greater access to the Chinese financial markets, which are still tightly regulated, and are part of an effort by Beijing to make the yuan a more internationally viable currency without giving up control.
U.S. Treasury Secretary Jack Lew, in Beijing for the discussions, praised the moves, saying they “will support the competitiveness of the U.S. financial and corporate sectors and improve U.S. investors’ access to China’s onshore capital markets.”
The investment quota is part of a relatively new Chinese program—called Renminbi Qualified Foreign Institutional Investor—that allows approved fund managers overseas to use yuan, also known as renminbi, raised outside the mainland to invest in China’s financial markets. An older program apportioned quotas in dollars, which could be converted into yuan for investments.
Under the yuan-denominated investment program, the new quota for U.S. investors is the largest given out by the central bank after the 270 billion yuan given to Hong Kong, a Chinese city that operates under its own laws. U.S. firms approved by Chinese regulators would now be able to invest yuan funds raised overseas up to that amount to buy Chinese securities.
“The U.S. is a very important market,” Yi Gang, a deputy central bank governor, said at a briefing on the sidelines of the high-level talks known as the Security and Economic Dialogue.
Beijing has been trying to encourage foreign investment to help create growth and jobs at a time the world’s second-largest economy is flagging after a long boom. Since late last year, after capital surged out of the country in response to the weakening economy and yuan, the central bank has tightened control over companies and individuals seeking to take money out while loosening restrictions on money coming in.
Mr. Yi, the central bank vice governor, didn’t say when the yuan-clearing banks would be set up. Such banks are needed, many currency experts say, if China wants to make the U.S. another major yuan-trading center outside the mainland. So far, most of yuan trading overseas has concentrated in Hong Kong, followed by Singapore, London and Taiwan.
Currently, the U.S. is one of the few major financial markets with limited-to-no yuan investment, clearing, or settlement capacities. As a result, some U.S.-based asset managers, such as BlackRock Inc., have gone through their foreign affiliates to obtain yuan quotas in order to invest in China’s domestic stocks and bonds. Large U.S. corporations, likewise, need to tap their overseas affiliates or banking relationships, making the process costly and less efficient.
Late last year, former New York Mayor Michael Bloomberg led the effort to set up a working group with Wall Street leaders to push for a trading and clearing center in the U.S. for the Chinese currency. Former Treasury chiefs Timothy Geithner and Henry Paulson, and Thomas Donohue, president of the U.S. Chamber of Commerce, also came on board as co-chairmen.
“Given the fact that it is costly, complex and inefficient for U.S. businesses now to access RMB services, it is surprising that the U.S. hasn’t done this already,” said Mary Schapiro, former chairman of the U.S. Securities and Exchange Commission, who is vice chair of the working group. China is the U.S.’s largest trading partner.
WALL STREET JOURNAL