New ASIFMA report says China’s capital markets are reaching an inflection point, and provides 103 recommendations to facilitate their further development.
ASIFMA has released a new whitepaper documenting an acceleration of change in China’s capital markets, which it says will profoundly affect international demand for Chinese equities and fixed-income securities.
Just this year, draft rules have been published to effectively combine the QFII and RQFII into one programme, while removing quantitative criteria that hampered inbound investment. Meanwhile, foreign players have been allowed to enter the onshore brokerage, asset management, banking and credit rating markets, with fewer restrictions.
As a result of operational enhancements by Chinese authorities, Bloomberg confirmed the inclusion of yuan-denominated government and policy bank securities in the Bloomberg Barclays Global Aggregate Index; MSCI will quadruple the weighting of Chinese mainland shares in its global benchmarks; and FTSE Russell said it would add shares to its FTSE Emerging Index.
“Given the acceleration of change since the first ASIFMA capital markets whitepaper in 2017, the title of this report [China’s Capital Markets: The Pace of Change Accelerates] reflects that China’s capital markets are reaching an inflection point, in which they will ultimately mirror the best practices in international markets, while developing financial products, services and systems that best serve China’s evolving economy and capital markets institutions,” said Mark Austen, CEO of ASIFMA.
“However, these developments are of course not without their challenges. Our new report is designed to provide a timely analysis of where China is at in its capital markets development and collective industry insights on how it can best further develop them.”
The paper lays out 103 recommendations to further develop China’s capital markets, including to:
- Move to T+1 or T+2 settlement cycle to better harmonise with global practice and reduce settlement risk
- Reduce restrictions on futures and other derivatives, which are crucial tools for hedging risk
- Eliminate quota system for Stock Connect and QFII
- Increase regulatory transparency and consistency with a more open market consultation process
- Incorporate clearly and unambiguously the enforceability of close-out netting in statute, reflecting internationally accepted practices
- Harmonise the requirements of market access programmes with a view towards future consolidation and/or alignment to improve efficiencies
- Ensure foreign-owned securities JVs can operate and compete with domestic firms on equal footing by swiftly granting approvals
“We believe that by carefully choosing the right reforms, China has an abundance of opportunity to build on the experience of developed markets, avoid their past mistakes, and leapfrog their successes,” said Austen. “We believe the ASIFMA recommendations in this paper chart such a path.”
The full report is available here.
ASIFMA is an independent, regional trade association with over 125 member firms that works to promote the development of liquid, deep, stable and competitive capital markets in Asia.