Efforts to boost investor confidence amid ongoing challenges in China’s economy
China is considering relaxing the current limits on foreign ownership in its stock market in an effort to attract global funds back into the market, valued at US$9.4 trillion. The proposed changes would ease restrictions on foreign ownership in companies listed in Shanghai, Shenzhen, and Beijing, potentially allowing for increased overseas investment. Currently, foreign investors can own a maximum of 30% of a publicly traded Chinese company, with individual foreign shareholders limited to a 10% stake.
The discussions are still in the early stages, and details such as the sectors that would benefit or the new cap levels have not yet been finalized. While foreign investment has been declining due to concerns about China’s economic fragility, the relaxation of these limits is seen as a move to open up the market and enhance liquidity. The Chinese authorities hope this will help reinvigorate the capital markets and restore investor confidence.
Foreign funds have been fleeing China, with a record US$12 billion in A-shares sold off in the past month. This follows a broader trend, as foreign holdings in China’s equities and debt dropped by approximately 17% from the peak in December 2021 to June 2023. Investors are also concerned about issues such as China’s ongoing property crisis and deteriorating relations with the United States.
As part of the broader efforts to stabilize the market, China has already reduced handling fees for stock transactions and stamp duties. However, many global investors remain cautious, with China’s equity market ranking among the worst performers globally this year.
Midea Group, one of the most foreign-owned companies in China, has an overseas shareholding of 25.8%. Other companies with significant foreign ownership include Centre Testing International Group (27.48%) and Proya Cosmetics (26.37%).
