Chinese to be allowed to buy UK shares

• to relieve domestic economic imbalances from the build-up of excess liquidity in the financial system.
• to seek more balanced, long-term returns for retirement funds.

Chinese citizens will soon be able to buy shares and mutual funds in London and New York through their local banks after a regulatory reform that marks a further step in the export of Chinese capital into global markets.

A scheme under which Chinese can now legally buy shares in Hong Kong will be extended to include London under an agreement between the China Banking Regulatory Commission and British regulators.

China is also negotiating a similar agreement with US regulators to further extend the scheme to the New York markets, a CBRC statement said.Although the amount of money available to invest in London is expected to amount to only a few billion dollars initially, China will allow more funds out of the country once it considers the programme is operating properly.

Beijing has two aims in allowing its citizens’ money offshore: relieving domestic economic imbalances from the build-up of excess liquidity in the financial system, and seeking more balanced, long-term returns for retirement funds. Under the scheme known as Qualified Domestic Institutional Investors, China has since early last year approved local fund managers and banks to invest money offshore.

Twenty-one commercial banks had approved quotas totalling $15.1bn at the end of September, according to a government website. However, not all of these quotas have been filled, as Chinese investors have preferred to put their money for the moment into the fast-rising local bourse.

Peter Alexander, of Z-Ben Advisers, a consultancy in Shanghai, said the recent volatility in Hong Kong markets might have encouraged China to push ahead with expanding the QDII programme. “While the returns in London might not be so high, the risks might not be as great [as in Hong Kong],” he said.

(By Richard McGregor in Beijing and Neil Hume in London)
Copyright The Financial Times Limited 2007