China May Ease Controls on Citizens’ Offshore Investments

China is considering easing capital controls to allow citizens to invest in overseas securities and insurance products as part of a series of moves to liberalize capital markets, according to a senior foreign exchange regulator.

The State Administration of Foreign Exchange (SAFE) will study the feasibility of allowing domestic investors to use their annual foreign exchange quotas to invest in foreign capital markets, Ye Haisheng, director of the administration’s capital account management department, said in an interview published in the official China Forex Magazine.

Under China’s forex rules, individual citizens can exchange foreign currencies equivalent to $50,000 each year, but the money is restricted from use in making direct overseas investments, such as purchases of offshore securities, insurance and properties.

Changes in such limits would mark a significant step in China’s push for a two-way opening of its financial markets. Since 2018 China has accelerated expansion of foreign investors’ access to its capital markets through a series of policy changes. Regulators have stepped up relaxing controls over currency and capital flows, including steps to liberalize the yuan following its recent appreciation.

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In the article, Ye said China is also considering lifting a quota limit for individuals who take part in stock incentive programs of offshore-listed companies while assisting in the central bank’s push to launch a cross-border wealth management connect program in the Greater Bay Area covering Guangdong, Hong Kong and Macao.

China will expand the quota for the Qualified Domestic Institutional Investors program (QDII) at some point and streamline the quota allocation process, Ye said in the article. The QDII program was launched in 2006 to allow qualified domestic institutions to invest in overseas capital markets. These include commercial banks, insurance companies, securities firms and fund managers.

The State Council approved a total of $180 billion of quotas for QDII. As of January, there were $54.3 billion of quotas waiting to be allocated after the latest issuance of $9.02 billion.

China will revise rules regulating domestic insurers’ overseas investments and further liberalize the derivatives market for foreign investors, according to the article. Meanwhile, regulators will step up monitoring of cross-border capital flows and crack down on violations, Ye said.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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