Capital Outflow Major Concern over Opening of B Share Market to Domestic Investors

Concern over the flight of foreign currency capital has been a major reason behind China's opening of its B share market to domestic investors, a spokesman for the China Securities Regulatory Commission (CSRC) has said.

Explaining the new policy announced Monday, the spokesman said China has allowed its residents to keep their legally obtained foreign currencies, which are meant to be used for loans by Chinese banks for domestic projects.

However, the spokesman said, the rapid increase in foreign currency savings deposits over recent years, especially since last year, has led to a large part of the deposits being lent overseas or spent on foreign bonds.

"Excessive outflow of capital is not desirable at the moment for China as a developing country," the spokesman said.

He also noted that the B share market has been designed to attract foreign investment, but the rise of the H shares, red chips and other channels of financing has greatly reduced its importance.

"In view of the new situation, it is necessary to attract part of the foreign currencies in the hands of domestic residents to support the development of the national economy," said the spokesman.

Reforms of the B share market will also help China accumulate experiences in opening its capital market to foreign competition, which will be inevitable after China's entry into the World Trade Organization (WTO), he said.

The spokesman explained that corporate bodies are still banned from the B share market, as only a few specially approved businesses are allowed to keep their foreign currency incomes for current account purposes alone.

The spokesman disclosed that amendments to the rules of the B share market to improve its services and attractiveness are being worked on by the Shanghai and Shenzhen bourses and will be completed soon.






People's Daily Online --- http://english.peopledaily.com.cn/