Chinese Firms, Regulators in Talks on Yuan-Fund Program (By Lingling Wei March 22, 2012):

There is a proposed program that could increase capital flow while helping China's stock market grow.  The program would allow approved investors to use yuan funds raised in Hong Kong to invest in Hong Kong exchange-traded funds that track mainland-listed stocks.  Originally it was proposed by China’s Securities Regulatory Commission and would require approval from the country's cabinet and council. The proposal would enlarge a recently launched trial program that allows approved parties to invest in China's stock and bond markets with yuan raised offshore. This will make the yuan more of an international currency.

The current program leans more toward bonds than stocks. Under the guidelines issued by Chinese authorities, at least 80% of the yuan funds raised must be invested in fixed-income securities traded on the mainland, with no more than 20% for equities. Since this issue has been addressed, several fund managers cited uncertainties over China's markets and they are still in the process of piloting this program.  It could mean some big things for the future of China, Hong Kong, and the Worlds economy.

~Chet Matsuura

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