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CSRC Spokesman on China's Opening B Share Market to Domestic Investors
Spokesman for China Securities Regulatory Commission (CSRC) answered questions regarding the policy on domestic residents investing in the B-share market during an interview on February 19.
Question: Marked changes have taken place in the overall situation regarding the circulation of foreign exchange capital, what does this imply?
Answer: For a long period of time, China had been a country with a relative shortage of foreign-currency capital. The initial intention of designing the B-share market is to attract foreign-currency capital.
China has always allowed domestic residents to reserve lawful foreign-currency earnings and use their foreign-currency deposits for the projects needing foreign-currency capital in domestic economic construction.
However, the amount used could hardly meet the demand for foreign-currency loans. In recent years, especially since 2000, great changes have taken place.
The foreign-currency deposits of domestic residents reported a rapid growth, a considerable portion of which has been shifted abroad or used to purchase foreign bonds by domestic banks. Excessive export of capital is still inappropriate at present for a developing country like China. Allowing domestic residents to invest their lawful foreign currency in B-share is a new subject raised in light of changes in the macro-economic situation.
Q: Why is it necessary to develop the B-share market?
A: The B-share market was established with the initial intention to attract foreign investment. Later, with the development of other financing means such as H-share and red chips, the function of B-share has been gradually weakened.
Therefore, China has made the move to use the B-share market to attract a certain amount of foreign-currency capital held by domestic residents in line with the new situation so as to promote economic development.
B-share has always served as an experimental plot for China's opening its capital market to the outside. In order to give fuller play to its role, it is necessary, in light of the development requirement of the macro-economic situation, to further study the positioning of B-share, conduct constant exploration of its law and improve its functions, so as to accumulate experiences for opening wider to the outside world.
After China's impending entry into the WTO, its capital market will unavoidably face the competition with the international capital markets and meet the challenges posed by the inflow of foreign capitals sooner or later. Developing the B-share market makes it possible for us to make experiments within a certain scope, accumulate experiences and gradually raise the level of opening China's capital market to the outside world.
Q: Why did China's bourses suspend B-share trading on the afternoon of February 19, which made everyone feel surprised?
A: With regard to the B-share market and related policies, CSRC and relevant departments have been engaged in long-time studies and considered a variety of possible programs.
After several rounds of discussion, the opinions voiced by various parties had been gradually drawn closer to each other. Not long ago, CSRC submitted the related program to the State Council and received a written reply at 11:00 a.m., February 19.
Considering that there would not exist effective media means at noon time, and in order to ensure that various parties obtain the information fairly, the bourses decided to suspend the swap of B-shares on Feb 19 afternoon, so that a full revelation would be available in the period from February 19 evening till February 20. Besides, in order to adapt to the new situation in which domestic residents invest in the B-share market, it was also necessary to adjust regulations and technology through temporary suspension of B-share trading.
Q: Why is it that domestic legal persons are not allowed to participate in B-share investment for the time being?
A: Currently, legal persons in China do not have much foreign currency and most of which is capital urgently needed for business running, and is therefore inappropriate for B-share market investment.
In addition, since the foreign currency system was reformed in 1994, only the specially approved enterprises can reserve foreign currency for the purpose of meeting of needs of the turnover of funds under the current account. These working funds, for the moment, are not considered to be appropriate for investment usage.
Q: What preparations should be made by the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) for domestic residents' investing in the B-share market?
A: The preparatory work generally includes three parts:
First, revise the regulations concerning B-share trading and promulgate detailed measures as soon as possible for lawful domestic investors to open B-share and foreign-currency accounts;
Second, publish related policy measures for domestic residents' B-share investment and put them into practice;
Third, conduct necessary testing and adjustment of the trading and settlement systems of the exchanges.
Q: How should domestic residents holding lawful foreign exchange to participate in the B share market?
A: CSRC will soon publish a management method clearly defining how should domestic residents with foreign exchange deposits in the bank open an account of funds in the bank and a stock trading account in the bourse. Upon the publication of the method, those intending to invest in the B-share market can open an account and participate in B-share transaction.
Q: It is reported that at present, some domestic residents have actually entered the B-share market through various ways. Does permission of domestic residents to invest in the B share market mean recognition of it to be an established fact?
A: As far as I know, the problem of domestic residents opening an account in a disguised fashion did exist in the B-share market. But CSRC has always acted in accordance with the regulations and has legally dealt with cases of illegally opening an account. The present decision on policy adjustment for the B-share market was made mainly in compliance with the requirement of the macro-economy, not out of the consideration of an established fact. In the future, CSRC will work with departments concerned to investigate and prosecute cases relating to illegal gain of foreign exchange or illegal entry into the B-share market. Regarding this, our attitude has always been clear-cut.
Q: What risks may possibly be brought about by the development of the B-share market?
A: Developing the B-share market aims to attract domestic residents with legal foreign-currency deposits to participate in the market. However, we cannot rule out the possibility that some residents, who have no foreign currency but are lured by the market, also attempt to enter the market through illegal procurement of foreign exchange. To eliminate such practice, we must reiterate here that arbitrage and black market transaction are illegal which are to be severely punished. CSRC will take concerted actions with public security and foreign exchange control departments to control and crack down on illegal actions.
Q: What other measures will the B-share market take?
A: Due to its small size, the B-share market has made not much improvement in terms of services and regulations in recent years. Presently, SSE and SZSE are working with concerned departments in formulating and revising relevant regulations and studying ways to improve B-share market service, so as to meet the need of the said market, enhance its competitiveness accordingly, and intensify supervision and control over it. Related work is expected to be finished in the near future.
By PD Online Staff Du Minghua
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