China to Test Freer Cross-Border Capital Flow in Hainan
What’s New: China will launch pilot programs to make it easier for foreign investors to tap Chinese equity assets and vice versa in Hainan as part of a plan to turn the southern island province into a world-class free-trade port (FTP).
China will launch the Qualified Domestic Limited Partnership (QDLP) and Qualified Foreign Limited Partnership (QFLP) pilot programs in Hainan to test freer cross-border investment in the FTP, Pan Gongsheng, deputy governor of the central bank, said Monday at a State Council press conference.
The QFLP allows foreign individual and institutional investors to invest in Chinese assets through fund managers, while the QDLP gives foreign investment access to domestic investors.
China will also test a new cross-border financing system in Hainan and gradually grant more freedom for local residents to exchange foreign currencies, Pan said. China currently limits domestic individuals to exchanging $50,000 of foreign currency each year.
Background: China has launched QDLP and QFLP pilot tests in selected cities as the country moves to liberalize capital markets. The QDLP program is currently available in Beijing and Shanghai, while the QFLP program can be accessed in more cities including Guangzhou, Shenzhen and Tianjin.
Pan’s remarks on the plan to liberalize personal access to foreign currency mark a resumption of a long-halted regulatory revision. In 2013 China pledged to expand personal access to foreign exchange as part of major financial restructuring measures to be delivered during the 12th Five-Year Plan period. But the effort was shelved in late 2015 out of concerns over excessive capital outflow.
Last week, China unveiled a massive plan to develop Hainan over the next 15 years and make it an “internationally influential, high-level” port by 2050. The plan includes 60 measure including market opening, tax breaks and softer regulation that will make foreign trade and investment easier, boost the island’s position as a transport and logistics hub, and attract a range of industries.
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