With a pedigree that includes a Ph.D. in economics from Stanford University and a five-year stint as an investment officer at the World Bank, it is not surprising that the vice chairman of the China Securities Regulatory Committee is a proponent of the opening of China’s markets.
In his position at the CSRC, Fang Xinghai oversees both China’s futures and stock markets, and also is responsible for corporate finance. Interviewed by FIA President and CEO Walt Lukken on the first day of the FIA Asia Conference, Xinghai said the pandemic, “if anything, has accelerated the development of China’s capital markets.”
China’s financial center, Shanghai, has moved up in terms of financial ranking, he said, “right behind London and New York this year.”
The pace of individual public offerings (IPOs) in China also has accelerated, he said, with about 400 IPOs launched in the Chinese stock market this year. Futures market trading is also up significantly, and Xinghai said the futures market in China has “played the role it’s supposed to play,” which is to “smooth out” economic gyrations and make risk management easier.
He said China has been very actively working to attract more institutional investors into the market. The manufacturing, mining and service sectors are more active participants because they increasingly feel the need to manage risk, he said. And as the quality of the markets improve, more investors and end-users use them.
Among the attractions for international institutional investors are Chinese futures contracts in crude and low-sulfur fuel oil, and a newly launched copper contract. International investors currently make up about 10 percent of the volume in China and hold 10 percent of the contracts, he said. Private equity firms are also moving into futures, he added.
“There is money to be made in China, frankly,” Xinghai said.
That will be greatly facilitated by the expansion of Qualified Foreign Institutional Investor programs, he said. In the past, “moving in and out of capital funds could be quite difficult in China,” but the reforms have enabled firms to move much quicker.
Xinghai pointed out that China has opened up its markets to global investors through two channels: one through QFII programs (his preference) and the other through a Stock Connect link between China’s mainland markets and the Hong Kong Stock Exchange, begun in 2014.
Stock Connect allows mainland Chinese investors to buy stock in certain Hong Kong and Chinese companies listed in Hong Kong and lets foreign investors buy China A shares listed on the mainland.
“We want to strike a balance between the QII and Connect programs,” Xinghai said.
Asked by Lukken about coordination between the Chinese markets, Xinghai touted the benefits of fewer regulatory entities. “Every Chinese market has one regulator,” he said.
Harmonized supervision might also explain why Xinghai is confident that Chinese environmental, social and corporate governance (ESG) products — “clean products and clean securities” — are growing, helped by mandatory exposure and incentives for investment. “I expect the capital markets will play a more important, irreplaceable role in climate change,” he said.
As for the Chinese futures market, Xinghai said it is “in the early stages of development,” but is fully open. “We continue to view the U.S. futures market as an example to learn from,” he said. “We look forward to having more exchanges between the U.S. and China markets …. We welcome U.S. firms to come and grow their business.”