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China aims to open up investment

Stocks in Shanghai rose 3.1 percent after a regulator said China needs to allow more foreign investment.

Reuters

Stocks in Shanghai rose 3.1 percent after a regulator said China needs to allow more foreign investment.

HONG KONG — In what would be a drastic liberalization of China’s huge but still cloistered capital markets, the country’s top securities regulator said Monday that foreign investment could be allowed to rise as much as tenfold.

Citing the still-nascent levels of overseas participation in domestic stock markets — despite recent actions more than doubling the amount of money that foreign funds can invest there — Guo Shuqing, the regulator, hinted 2013 could bring sweeping new measures to open financial markets in China.

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‘‘For our capital markets to mature, they must open more in the future,’’ Guo, chairman of the China Securities Regulatory Commission, said at a financial forum in Hong Kong. ‘‘Our goal is to make it easier for nonresidents to issue and trade securities in the domestic markets.’’

Shares in Shanghai leaped 3.1 percent after Guo’s comments, as investors speculated a wave of foreign cash could hit the mainland stock markets. That added to a monthlong rally in which the benchmark Shanghai share index rebounded 18 percent from early December, when it hit its lowest levels in more than three years.

With a total capitalization of about $3.2 trillion, China’s domestic stock market is one of the biggest in the world, but it is also one of the most restricted among major economies.

Guo said that foreign investors hold only about 1.5 percent of the domestic share market by value. “I think at least we can increase that 10 times,’’ he said.

Some observers expressed deep skepticism.

‘‘This is great headline stuff, but I don’t think it is particularly constructive, because you are not going to simply take the lid off and increase everything by 10 times,’’ said Fraser Howie, coauthor of ‘‘Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.’’

“I would like to see proper, sensible moves to break down some of the barriers to entry and the actual movement of money,’’ Howie said.

Guo spearheaded a move in April that more than doubled the amount of Chinese shares foreign investors could own. He increased the quota for so-called qualified foreign institutional investors to $80 billion from $30 billion. However, by Dec. 31, only $37.4 billion of that quota had been allocated to investors, spread among 169 banks, brokerage firms, and other financial institutions, according to the State Administration of Foreign Exchange.

Guo did not give details of how China might raise foreign investment by such a large factor. But he hinted at one potential new program: letting in ordinary retail investors, most likely those from Hong Kong.

China’s markets are open only to funds managed by brokerage firms, banks, and other institutions. But Guo said he had been in talks with industry groups in Hong Kong about introducing a quota for so-called qualified foreign individual investors.

Details were sparse. But analysts said the general tone of the remarks was consistent with similar indications made recently by the central bank that support was growing for ­financial changes.

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