China signals real financial opening up, but will it follow through?
- Idea of allowing people to change yuan into other currencies and then decide what offshore assets to buy is revolutionary
- Immediate monetary impact of a relaxation would be limited because many affluent Chinese have invested overseas anyway
It is hard to overestimate the plan’s significance over the long run, if it goes ahead.
Therefore, the idea of allowing people to change yuan into other currencies and then decide for themselves what offshore assets to buy is revolutionary. It would mark a milestone in China’s foreign exchange deregulation and create an institutionalised channel for mainland investors to participate directly in global financial markets. It may create China’s answer to “Mrs Watanabe” – the proverbial Japanese housewife who made a splash in international markets in the 1980s by investing her family’s savings – and it could even result in a powerful coalition of Chinese individual investors in the next GameStop-like battle on Wall Street.
The immediate monetary impact of this relaxation, however, will be limited because many affluent Chinese have invested overseas anyway.
China’s foreign exchange regulators will need a strong political blessing to move forward and prove that the plan will not create systemic risks. In 2007, China announced it would try a “through-train” plan to allow investors in Tianjin and Shenzhen to invest in Hong Kong stocks, but that plan was scrapped the same year as Beijing found huge amounts of money flowed to Shenzhen.
Beijing could shelve this new plan if it sees a danger.