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FSC chairman dismisses fears of capital flight

The Cabinet's lifting of the ban on locally managed onshore funds and discretionary accounts investing in Chinese and Hong Kong stock markets on Wednesday is unlikely to further fuel capital flight to China, financial regulators said yesterday.

With the removal of the ban, onshore funds and discretionary accounts are allowed to invest up to 0.4 percent of their net assets in the Chinese stock market. The cap on investment in the Hong Kong stock market is 10 percent.

Financial Supervisory Commission Chairman Hu Sheng-cheng (胡勝正) said that given the investment caps, he estimated that domestic fund managers may reallocate a maximum of NT$10 billion (US$308 million) to NT$40 billion from existing Asia-related funds to China-specific shares.

"But we do not expect the new measure to encourage further capital outflow," Hu said.

Securities and Futures Bureau Director-General Wu Tang-chieh (吳當傑) echoed Hu's sentiment.

Wu said that local securities investment trust companies manage a total of NT$710 billion in onshore funds and discretionary accounts, of which NT$380 billion is invested in stocks, including NT$100 billion in Asian shares.

This means only NT$10 billion and NT$400 million out of the NT$100 billion in Asian stock investments can be reallocated for investment in Hong Kong and China-listed shares, respectively, Wu said.

Hu said that the new measure was meant to level the playing field for both onshore and offshore funds.
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