Beijing is preparing to relax restrictions on purchases of foreign securities by people who give retail investors in China greater access to Australian equities market.
Chinese state media reported a test program shortly be launched allowing mainland residents to invest directly in stocks and bonds abroad. That happened because investors hungry assets pushed the Shanghai Composite Index to a seven-year high on Wednesday fresh.
The Qualified Domestic Individual Investor (QDII2) program will be part of a gradual plan by Beijing to liberalize capital flows and eventually make its currency, the yuan fully convertible.
"This opens a whole new investor base for fund management companies in Australia between increasing number of HNWIs in China," said David Olsson, a senior consultant of China law firm King & Wood Mallesons.
"I imagine it would encourage the development of new financial products tailored to the Chinese market."
Under the proposal, which is due to the end of the week was officially announced, six cities shall execute the scheme for people who have at least 1 million yuan ($ 200,000) in investable assets.
With the exception of Hong Kong, Chinese investors wishing to buy in overseas markets today should do so through a mutual fund approved by regulators.
Analysts expect that the total down payment to be invested globally in a relatively small number of 20 billion yuan to 30 billion yuan, which then widened then if the trial runs smoothly.
No indication of the number of individual investors will be approved in the first stage of the plan.
"This indicates that China may soon relax the foreign exchange quota for residents on land," said Liu Li-Gang, chief China economist at ANZ. "This is the last step of China to deregulate capital markets and liberalizing capital outflows."
At present, only residents move $ US50,000 one years in and out of China, legally, although there is no money sophisticated underground market.
Chinese retail investors have driven the current sharemarket boom, shrugging off their traditional preference for physical assets such as property.
This has seen Chinese shares rise 140 percent in the last twelve months and sharemarkets in Shanghai and Shenzhen have become the most liquid in the world.
The value of shares traded in Shanghai is now six times more than the New York Stock Exchange, as retail investors pile into the market.
The Shanghai market has risen for seven consecutive sessions, but failed to break the psychological barrier of 5,000 points on Wednesday. In recent days the market has been driven by the actions of defense, amid growing tensions between Beijing and Washington over disputed waters in the South China Sea.
The next step for some retail investors would move part of their portfolios of stocks on the high seas, reflecting the trend of buying a second home in cities such as Sydney, Vancouver and Los Angeles.
According to a Bain & Company and China Merchants Bank, 37 percent of China's great estates have already made an investment offshore. The report said that half of them had plans to increase their investments abroad this year.
He defined those with investment assets of over 10 billion yuan as "high net worth" and said their ranks in China had a growth of 30 percent in the past two years as more than 1 million people.
The decision to allow direct investment in high sea comes after Beijing allowed investment fund products approved in Hong Kong or the mainland to be sold in any market.
The program will begin on July 1 and will have an initial fee of 300 million yuan.
"This will diversify investment channels for mainland investors and expand access to overseas funds to tap the capital market in the mainland," said Deng Ge, a spokesman for the Securities Regulatory Commission China.
Mr. Olsson of the firm King & Wood Mallesons said this also presents an opportunity for fund managers in Australia, adopted in Hong Kong, to start marketing their products to mainland investors.
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