China expands OTC equity market trial zones

Securities regulators on August 3rd confirmed that the State Council, China’s cabinet, has approved a plan to expand pilot zones for the “new third board,” a new over-the-counter(OTC) equity market, to shore up emerging businesses, according to Xinhua.

The new market is designed to be a platform for fledgling high-tech and growth enterprises to transfer shares and raise funds for specified use. Pilot areas will be expanded to the Zhangjiang High-tech Industrial Development Zone in Shanghai, East Lake High-Tech Development Zone in central China’s city of Wuhan and the Tianjin Binhai High-Tech Industrial Development Area, an unnamed official with the China Securities Regulatory Commission (CBRC) said.

Comment

The OTC board is one of a series of recent measures by Chinese policymakers to expand access to credit for small and private firms that have largely been shut out of China’s financial system, which is dominated by state-owned banks lending to state-owned companies. The new OTC market will help relieve pressure on the two bourses in the Chinese mainland and stabilize market expectations.

China to strengthen monetary policy fine-tuning

China’s central bank said on August 5, it will strengthen the fine-tuning of its monetary policy in the second half of this year, indicating as many analysts believe that more liquidity may be injected into the world’s second largest economy, reported by Xinhua.

The monetary policy should play a counter-cyclical role in the country’s economy and credit policies will be improved to shore up the development of the real economy, the People’s Bank of China (PBOC) said in a news release on its website.

It reiterated the significance of making the monetary policy more forward-looking, targeted and effective to sup- port steady and relatively fast economic growth. The statement came as analysts anticipate further cuts in interest rates and the reserve requirement ratio as China has recently seen weakening demand for its products and easing inflation. Dwindling orders from Europe and other trade partners have sapped China’s exports and, combined with a cooling property sector, slowed the country’s economic growth rate to 7.6 percent in the second quarter, the lowest level since the first quarter of 2009. The PBOC also called for carrying forward with financial reforms on August 5th, while urging more efforts to maintain financial stability.

Comment

To cope with the faster-than-expected slowdown, the PBOC has cut its lending and deposit rates twice this year and lowered the amount of funds that banks must keep in reserve for three times since December last year. Authorities at all levels must hold firm to the bottom line of not letting any system-wide and regional financial risks occur.

CSRC approved 41 QFII this year

The China Securities Regulatory Commission approved 41 new qualified overseas institutional investors so far this year, accounting for 23 percent of the total QFII for the last 10 years, reported by China Daily.

According to the CSRC, the last four approved institutions were from the United States, Hong Kong and Taiwan. The number of approved QFII in 2011 was 29, while it was 23 in 2010 and 19 in 2009. At the beginning of the month August, CSRC officials said the commission will speed up the QFII examination and approval process. In July, the CSRC also implemented rules to make the approval process more flexible.

Comment

The system of QFII has been going well since it was put into effect on December 1st in 2002. QFII has played a positive role in many aspects, like supporting the reform and innovation of China’s capital market, improving market investment and promoting listed companies to improve their management. CSRC has accelerated the qualification approval of QFII and enhanced the supervision of investment this year. It helps to attract more oversees long-term fund into China.