China will impose limits on the amount of money local investors can spend on Hong Kong stocks, an official said yesterday, suggesting the city will not see the wave of funds originally expected.
The announcement is the latest modification to a plan to let private investors buy directly into the Hong Kong stock market, which triggered initial expectations that the city would be flooded in liquidity.
"There will be investment limits for the scheme," Xia Lingwu, a spokesman with the China Banking Regulatory Commission said, confirming a report in the Financial Times.
Liu Mingkang (
"They can lift and readjust the quota if necessary and appropriate -- it's a flexible ceiling," Liu said.
The State Administration of Foreign Exchange announced last month that residents of China could invest an unlimited amount in Hong Kong stocks under the pilot scheme.
But the plan, designed to ease excessive liquidity in China and give people a wider choice of investments, has since been steadily adjusted.
TRIAL RUNS
The business magazine Caijing reported on Monday the plan would initially be open just to residents of Tianjin, where it will undergo the first trial runs.
The number of institutions handling the investment scheme -- currently limited to the Bank of China and Bank of China International -- will also be expanded, it reported.
Delays in implementing the program have triggered speculation that powerful government agencies opposed it, but the banking regulator denied that the program was in direct jeopardy.
YUAN CONVERTIBILITY
In related news, China has no timetable for full convertibility of the yuan, People's Bank of China Governor Zhou Xiaochuan (
Zhou added China will take a step-by-step approach to currency reform as the nation moves to further develop its domestic financial and insurance markets.
China restricts trading in the yuan and limits the range of its daily movements to 0.5 percent above or below the previous day's closing value.
Zhou also reiterated the central bank's unease over fast rising stock and real estate prices.
China "is quite concerned about asset prices," Zhou said, without elaborating.
The benchmark Shanghai Composite index has more than doubled this year as investors have poured their money into the market. Meanwhile, inflation in China reached an 11-year high of 6.5 percent last month, brought on by a surge in food prices and continued rapid expansion of the economy.
To cool inflation and borrowing, Beijing last week raised benchmark interest rates for the fifth time this year, lifting them by 0.27 percent point to 7.29 percent.
Zhou also said this week's larger-than-expected rate cut in the US isn't a constraint to China's monetary policy, although he said the chance for arbitrage and carry trades exist as a result of the interest rate gap between the US and China.
"China's interest rate policy is very much based on domestic economic considerations such as domestic CPI, domestic investment, and domestic consumption," Zhou said.
However, Zhou said the central bank will stay on the lookout for further movements of US interest rates. The Federal Reserve cut its key interest rate a half point to 4.75 percent on Tuesday.
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