China securities regulator notes foreign funds' impact on A-share market

Foreign funds' impact on the pricing of Chinese stocks has been on the rise, which creates conditions of value discovery for investors, Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC), said at the Boao Forum for Asia on Monday.

As of March 31, 2021, foreign institutions' holding in China's stock market has reached 5%. With foreign funds continuing to enter China, the market volatility has notably seen lower than before, Fang noted.

Fang added that the CSRC will take measures to prevent large fund flows from coming in and out of China, which may destabilize the domestic stock market.

He pointed out that there are three types of foreign investors entering China. The first is retail investors who count for a relatively low percentage and won't have much impact on the market stability. Another type consists of mutual funds, pension funds, and insurance companies, who are welcome to China and count for the highest proportion among foreign investors.

The CSRC is more concerned about the last type that comes in as proprietary entities of foreign brokerages, behind which are some hedge funds. The regulator pays great attention to safety and will continue to communicate with overseas institutional investors and regulatory authorities, Fang said.

He further explained, there are rules embedded in Stock Connect programs between Shanghai and Hong Kong, and between Shenzhen and Hong Kong, which will suspend the trading of a fund if it causes a high level of market fluctuations. "We are confident that we can maintain the stability of the capital markets in the process of opening up", he said.

He elaborated that the regulator pays extremely high attention to monitoring foreign investors. The CSRC will suspend the trading of a foreign institution’s account if it causes turbulence after entering the A-Share market.

Besides, in responding to the regulatory issues of the Chinese companies that are listed in the United States, Fang emphasized that the CSRC will unswervingly promote Sino-U.S. financial cooperation. He viewed some issues arising in the cooperation as normal, for instance, the audit supervision issues of these Chinese companies listed in the US.

The CSRC sees it as totally reasonable for the Public Company Accounting Oversight Committee (PCAOB) to inspect accounting firms. Fang noted that American companies need to comply with Chinese rules as well when they are listed on Shanghai Stock Exchange in the future.

He stressed the necessity to find a solution for PCAOB to smoothly inspect China's accounting firms, and meanwhile to make sure the inspection process meets China’s national security requirements. When it comes to PCAOB's inspection methods, the CSRC believes what China has proposed to be in line with the requirements of both sides, but it hasn't received feedback from PCAOB after the latest version of the proposal was sent last August. The Chinese regulator hopes the new U.S. administration pays attention to continuous Sino-U.S. financial cooperation, finds solutions to these issues, and addresses the concerns of PCAOB.

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