Foreign investor presence in China's securities market to become stronger

Foreign investors are expected to have a stronger presence in China's securities market on the back of China's economic rebound and steady opening up of the financial industry, said Wang Chunying, deputy head and spokeswoman of the State Administration of Foreign Exchange, on Friday.

Experts said growing enthusiasm of global investors to hold renminbi-denominated assets reflects their long-term confidence in the Chinese economy and will help accelerate the internationalization of the Chinese currency.

At a news conference in Beijing, Wang disclosed that foreign investors increased their holdings of China's onshore renminbi bonds in March, and foreign capital also reached a record high in net purchases of equities on Chinese mainland bourses in January.

"More foreign capital is expected to flow into China as the Chinese economy picks up momentum while the financial market opens up steadily," she said, adding there is ample room for foreign investors to capitalize on the strengths of China's securities market as their current holdings of both onshore stock and bond portfolios are at low levels.

She also said renminbi-denominated assets have several features like steady profitability, high investment value and strong appeal for investors seeking to diversify portfolio, which make them attractive to foreign investors.

As global investors steadily increase holdings of renminbi-denominated assets, the internationalization of the Chinese currency will accelerate and create more positive factors for the safety of the country's bilateral and multilateral trade and investment, and contribute to global trade and investment growth, experts both at home and abroad said.

Zhou Maohua, an analyst at China Everbright Bank, said he expects more foreign capital will flow into China's financial sector on the back of the country's accelerated economic recovery, mild and controllable inflation, favorable policy measures, and improving stock market expectations. Additional positives include long-term growth prospects of the economy and the deepening reform and opening-up policy.

Against that backdrop, the use of the renminbi in cross-border investments, payments and clearance deals will increase, he said.

Michael Spence, a Nobel laureate in economics and a professor at the Stanford Graduate School of Business, said he expects China to cautiously open its capital account and endeavor to make the renminbi one of the world's prominent currencies in trade settlements.

Expanding the use of the renminbi in trade settlements is a "good idea", he said, adding it is inefficient for China and its trade partners to settle in a third currency, especially when there is an emerging trend worldwide of avoiding having only one major reserve currency, following the US sanctions on Russia. Spence made the remarks in a video speech to the Dalian International Finance and Development Forum on Friday.

Yet the renminbi currently accounts for a relatively small proportion — only about 3 percent — in global trade, payments, settlements, pricing and reserves, said Wu Xiaoqiu, former vice-president of the Renmin University of China and dean of the China Capital Market Research Institute.

The internationalization of the renminbi must be driven by market forces, and free trade of the renminbi is a must to achieve the currency's internationalization, Wu said.

Local currency settlement in China's bilateral foreign trade is only a transitional arrangement on the path to the internationalization of the renminbi, as the expectation is that the renminbi will be a preferred settlement currency in global trade, he said.

Spence also said he does not expect China to completely open its capital account, at least in the immediate future, to avoid any significant imported risks to the Chinese economy from the volatile external environment.