China Aims to Give Foreign Investors Sufficient Hedging Tools: Central Banker

Ensuring that domestic and foreign investors have access to sufficient hedging tools to effectively manage risks will be a major task for the country’s financial regulators this year, governor of China’s central bank Yi Gang said over the weekend.

Overseas investors have long complained about the insufficiency of hedging tools in China as well as regulatory limits, while their demand for yuan-denominated financial assets has increased significantly in recent years.

One frequent target of complaints is the tough limits on stock-index futures, a tool for investors to hedge their bets. Previously, regulators had blamed short-sellers using this tool for worsening the 2015 stock market crash. Since early 2017, China has gradually loosened these restrictions.

Less government intervention in the derivatives market is also required for further opening-up, such as the inclusion of Chinese mainland shares in global index compiler MSCI’s indexes, multiple analysts said.

China has “made breakthroughs” in opening up its financial sector to foreign investors since the launch of a policy timetable last year, Yi said, speaking at the China Development Forum, an annual economic event in Beijing. There’s still room and potential for wider financial opening-up, the head of the People’s Bank of China said.

“Allowing domestic and foreign financial institutions to compete (with each other) in China can improve the efficiency of the financial market,” Yi said. The competitiveness of the sectors that have been opened up to the outside world has become stronger, while the fields that haven’t been opened up are usually less efficient, he said.

Further financial opening-up also requires China to improve its risk prevention, as the process is likely to make risk control more complex, Yi said.

Since last year, China has accelerated the pace at which it has been opening up its financial sector, including granting foreign investors wider access to its market.

In November, Swiss financial titan UBS Group AG gained the first approval to take control of a China-based securities firm; German insurer Allianz Group got the nod to set up China’s first wholly foreign-owned insurance holding company; and American Express Co. became the first foreign firm to win access to China’s bank-clearing market. In January, global credit rating agency Standard & Poor’s won the first approval to independently assess the quality of bonds in China.

Contact reporter Lin Jinbing (jinbinglin@caixin.com)