DOW JONES NEWSWIRES
August 23, 2007
 
SHANGHAI (Dow Jones)--China International Capital Corp., in which Morgan Stanley (MS) holds a 34.3% stake, received approval from China's securities regulator to invest overseas under the country's Qualified Domestic Institutional Investor program, a company official said Thursday.

CICC is the first Chinese brokerage to receive regulatory approval to invest in overseas securities.
Under China's QDII program, brokerages and fund management companies can raise money in either yuan or foreign currencies from institutions and individuals in China to invest abroad.

So far, the CSRC has approved only a handful of fund management companies, inluding China Southern Fund Management Co., China Asset Management Co. and Harvest Fund Management Co., to launch their QDII business.

China's foreign-exchange regulator said Monday it recently launched a trial program in the Tianjin Binhai New Area allowing individuals to invest directly in overseas securities products, as part of Beijing's efforts to widen channels for capital outflows.
 
 

China allows direct offshore investments (FT)
By Jamil Anderlini in Beijing
Published: August 21 2007

China's capital markets on Monday took a significant step towards integration with the rest of the world when Beijing announced it would allow individuals directly to buy securities offshore for the first time.

Investors will be able to open accounts at Bank of China branches across the country to trade securities listed in Hong Kong, whose markets, unlike the main
nland's, are integrated with the global economy.

China's State Administration of Foreign Exchange (Safe) also said these investments, under a pilot scheme awaiting final approval, would be exempt from a $50,000 (€37,000, £25,000) limit on the amount of foreign currency Chinese citizens could buy or sell every year.
 

Northeast Securities set for back-door listing (SCMP)
Nevin Nie
Aug 23, 2007

Northeast Securities will become the second mainland securities firm to complete a back-door listing this year when it begins trading on the
 
Mainland investors who flocked to buy qualified domestic institutional investor (QDII) products have learned a lesson that it is not easy to make quick gains from overseas stocks. Investments have shrunk amid the global rout triggered by the US subprime mortgage crisis.
 

HSI rallies amid news of wider share scheme for investors
Tim LeeMaster and Nevin Nie
Aug 22, 2007

A pilot scheme to allow mainland investors to buy Hong Kong stocks will be extended to
Shanghaiif it succeeds in Tianjin, the first to offer the programme, according to reports yesterday.

Investors will have to open an account with the Bank of China branch in Tianjin before trading the shares there. The city had previously been designated as a testing ground for currency reforms before the government allowed them to expand to a regional or national level.

Big institutional investors such as insurance companies have already been given the green light to put part of their funds into overseas assets -- as much as $95 billion this year, according to estimates by J.P. Morgan. And individual investors in China can buy mutual funds and other investment products that give them access to international stocks and bonds, though the heady gains in China's domestic stock market have helped mute interest so far.

Investors who want to take advantage of the trial program must open accounts at Bank of China Ltd.'s branch in Tianjin, a northern port city near Beijing, and the bank's Hong Kong brokerage arm, BOCI Securities Ltd. Tianjin has been designated as a trial area for some financial overhauls, but in practice investors elsewhere in China will also be able to open accounts there.

Chinese residents normally aren't permitted to buy more than $50,000 of foreign currency in a year, but investments in the program won't be subject to that limit. However, at least initially, investors will be able to buy and sell only securities traded on Hong Kong's stock exchange.
 

Beijing moves to open up markets  (FT)
By Jamil Anderlini in Beijing
Published: August 20 2007

China's capital markets on Monday took a significant step towards integration with the rest of the world when Beijing announced it would allow individuals directly to buy securities offshore for the first time.

Although the change will enable Chinese citizens to invest directly in all Hong Kong traded securities, investors are expected to focus on Chinese companies, which trade at an average 50 per cent discount to the mainland.
 

China's capital controls  (FT)
Published: August 21 2007

Add in the fact that the move was made ahead of the party congress meeting and this starts to look like a fundamental change of policy. Allowing unlimited renminbi to leave the country Ï a not unappealing prospect for the $2,200bn idling in deposits Ï is the boldest step yet in the march towards capital account liberalisation.

But it does reflect confidence. Having presided over one of the world*s best-performing markets, the authorities are allowing investors to liquidate their holdings and buy the same stocks across the border, where the 40-odd dual-listed shares are on average 75 per cent cheaper.

The rub is that most Chinese investors are likely to continue investing in momentum at home rather than value across the border. It is also worth bearing in mind that, tricky though they may be to execute, policy reversals are always possible, say, if too much money heads for the exit. That may explain why Beijing was sufficiently confident to pull this off Ï but it should not stop investors in the Hong Kong market feeling supremely smug.
 

China Is Admitted Into Anti-Laundering Group (WSJ)
By RICK CAREW in Shanghai and MAX COLCHESTER in Paris
July 2, 2007

China's entry as a full member of the Financial Action Task Force on Money Laundering stands to boost the ambitions of the country's cash-rich state banks as they try to expand overseas.
Many financial regulators, including the Federal Reserve, consider FATF's endorsement of a country's anti-money-laundering efforts an indication of whether a local bank is sound enough to operate abroad. China was voted into the organization by a plenary meeting of the international governmental body Thursday in Paris. The decision was announced Friday.
 
Industrial & Commercial Bank of China Ltd. and China Merchants Bank Co., have applied to open branches in New York. Currently, just two Chinese banks -- Bank of China Ltd. and Bank of Communications Co. -- have branches in the U.S.

China's legislature passed an anti-money-laundering law in October that took effect Jan 1. More recently, regulators have issued "know-your-customer" rules that require banks, brokerages and other institutions to keep records of major transactions and regularly verify the identity of their clients.

The Group of Seven nations established the FATF in 1989. It sets standards to prevent money laundering and to share best practices among national regulators. After the Sept. 11, 2001, terrorist attacks, the FATF added combating terrorist financing to its mission.

The FATF began considering China's membership in 1998 and allowed the country to join as an observer in January 2005, China's central bank said.

China's acceptance as a full member comes after the U.S. threw its weight behind China's bid. At the conclusion of the second round of the U.S.-China Strategic Economic Dialogue in May, the U.S. said it "strongly supports" China's membership in FATF.

Hong Kong, an important financial center for China, has been a member since 1991.

Since its introduction last year, the QDII program has failed to channel much of China's savings overseas. Yin Long, a banking regulatory official overseeing the program, said in late May that banks had used up less than $1 billion of the nearly $15 billion in quotas issued.

China's foreign-exchange regulator granted ICBC a foreign-exchange quota of $2 billion for QDII investments in the first batch of quotas it issued in July last year. The regulator has halted new quota issuances in recent months due to the lack of demand.
 

Authorities to crack down on illegal forex inflows (SCMP)
Reuters in Beijing
Updated on Jul 12, 2007
 

The agency said an initiative launched last November, in which more than 5,300 export firms were earmarked as needing close attention because they were suspected of dealing in speculative capital through disguised trade flows, was showing initial results.

It said that between November and April, annual growth in accounts receivable by all trade-related firms had dropped 44 percentage points compared with the first 10 months of last year.
Among the firms receiving special scrutiny, the foreign exchange income that was in excess of their actual sales had dropped by 40 per cent between the end of last September and the end of April.

That list now numbered nearly 5,800 firms.

SAFE said earlier this week that it had scrapped rules dating back to 1999 that had provided incentives for exporters to bring home as much foreign currency as they could.

 
Beijing opens door to foreign buy-outs (FT)
By Jamil Anderlini and Sundeep Tucker in Hong Kong
Published: June 6 2007

China on Wednesday signalled it was prepared to accept foreign private equity groups, folllowing last week's introduction of a law to encourage its fledgling domestic private equity industry.

Total private equity investment in mainland Chinese companies so far this year has slowed to $2.44bn, compared with $7.3bn in 2006, after Beijing introduced legislation last September to block the use of an offshore corporate structure used by most homegrown and international private equity groups.

A new law that came into effect last Friday establishes a legal framework for private equity and venture capital funds in China, by recognising their unique structure and simplifying the taxes they have to pay. The new law really throws the door wide open for onshore private equity and venture capital Rmb-denominated funds,î says Lester Ross, managing partner at WilmerHale law firm in Beijing.
The law allows large investors in investment funds to enjoy limited liability and removes a rule that imposed taxes on partnerships and their individual partners, encouraging domestic and foreign private equity groups to use a Cayman Islands-registered offshore structure.