Shanghai FTZ mulls offshore investment program for Chinese residents

SHANGHAI - A new program allowing Chinese individuals to invest in financial markets overseas will be launched this year at the Shanghai Free Trade Zone (FTZ), a Shanghai financial regulator told Xinhua on Wednesday.

The program will also see authorities raising the annual quota of foreign exchange for Chinese residents, which is currently capped at $50,000 a year.

"We are working with state-level regulators on measures to facilitate foreign exchange for individuals, and expand the cap gradually to $200,000-300,000 a year." said Zheng Yang, director of the Shanghai Financial Services Office.

The scope of cross-border investment allowed under the new program for residents within the Shanghai FTZ will include securities, real estate and other business ventures, Zheng said.

Details over who will be eligible are yet to be finalized, but a draft suggests that qualify individuals must have been employed within the Shanghai FTZ for a year, and have a legitimate tax and social security record.

The program will also utilize the free trade account, which was launched last year to facilitate cross border transactions in the free trade zone.

Regulators say cross-border investment and capital flow through the account enjoys greater freedom but underscored that activity was monitored for potential financial risks.

So far, only banks in Shanghai can open free trade accounts for their FTZ clients. The authorities have repeatedly said they would allow brokerages and insurance companies to open such accounts in the future for investment purposes.

There are also plans to use the free trade account to allow foreigners working in the zone to invest in Shanghai's financial markets, but nothing has been made public.

Offshore investors can now trade gold in renminbi after an exchange was opened in September within the Shanghai FTZ. Bullion trading at the exchange has reached 1,026 tons, or 224.3 billion yuan, as of March this year.

Trade of crude oil futures, originally scheduled to launch last year, is slated for the third quarter this year.

Individual investors in China still face restrictions. The Shanghai-Hong Kong Stock Connect launched in November allows domestic investors to invest in the Hong Kong stock market but only within the daily cap of 10.5 billion yuan and a total ceiling of 250 billion.

The daily quota for Chinese mainland residents investing in the Hong Kong stock market under the stock connect program was first used up on April 8 this year, more than four months after the program was launched. Individual investors on the mainland with their securities account balance below 500,000 yuan are currently barred from participating.

A world-beating rally at two bourses in Shanghai and Shenzhen has also spurred domestic investors to raise their bets on stocks listed within China. Both the benchmark Shanghai Composite Index and Shenzhen Component Index have doubled in a year-period ending April 30, this year.

Another program, Qualified Domestic Institutional Investor (QDII), has allowed financial institutions in China to apply to invest in foreign financial markets.

Nearly $90 billion of foreign investment has been approved under the QDII program as of April 29 this year, statistics from the State Administration of Foreign Exchange show.