As mentioned in the recently released Annual Report 2015 by the People’s Bank of China (PBOC), “qualified quality foreign companies will be allowed to issue shares in China in the future and the Convertible Depository Receipts (CDR) can be launched". It is also one of the priorities to be completed to realize RMB capital account convertibility in the next stage after RMB is included into the Special Drawing Rights (SDR).
It is claimed in the annual report that along with the inclusion of RMB into the SDR, the improving opening-up of domestic financial market and the enrichment of RMB-denominated financial products in international financial market, foreign investors will be more confident about RMB and more willing to hold RMB-denominated assets.
The PBOC indicated that China will move towards fixed goals, stick to deepening financial reform, improve the opening-up degree of financial markets like bond market and stock market, support healthy development of off-shore RMB market, further enhance the convertibility and free use of RMB, and realize RMB capital account convertibility in an orderly manner.
To achieve above targets, multiple key tasks must be completed in the future period:
The first task is to make individual investment at home and abroad more convenient, launch the piloting Qualified Domestic Institutional Investors 2 (QDII2) scheme at proper timing, and further enhance the freedom and convenience enjoyed by domestic residents in investing in overseas financial market and by foreign investors in investing in China’s financial market.
The second one is to further advance two-way opening-up of capital market. Qualified quality foreign companies will be allowed to issue shares in China in the future and the CDR can be launched; the opening-up of bond market should be further enhanced.
The third one is to revise and sort out relevant rules and regulations and include capital account convertibility into law framework. Accounting standard, supervision rules, law and regulation, which accord with international financial market, will be established in order to improve internationalization level of financial market.
The fourth one is to study and set up an all-dimensional and multi-layered framework of cross-border capital flow management policy, promote to build an account system with integration of RMB and foreign currencies, strengthen monitoring and analysis on cross-border capital flow of RMB and foreign currencies, and perfect effective risk warning, prevention and control system.
To launch CDR is mentioned by the PBOC for the first time, which gives rise to wide attention from the market. Depository receipt (DR) is a kind of transferrable receipt representing foreign securities which are tradable in a country’s securities market. When various circles researched the feasibility for China to launch an international board (allowing overseas companies to be listed on China’s A-share market) many years ago, direct IPO and issuing CDR were acknowledged as major alternatives for listing.
Zhou Hanmin, a standing committee member of the CPPCC national committee and vice-chairman of China National Democratic Construction Association, wrote an article suggesting building an international financial asset transaction platform in free trade zones (FTZs), developing financial commodities such as CDR, Asian-dollar bonds and RMB-denominated international bonds so as to cater to the demand of investors within and beyond FTZs. With the help of the special positioning of FTZ and features of pilot zones, it should allow transaction platform to make bold innovation in investor scope, capital flow, methods of product innovation and supervision model by referring to universal practice of international matured markets, to give full play to its unique functions in terms of expanding opening of capital market, promoting cross-border use of RMB and exploring innovation in management pattern, and to establish a financial asset transaction market with standard operation, openness, transparency and high-efficient supervision.
Translated by Jennifer Lu and Vanessa Chen
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