New rules that make it easier for international investors to trade in China's booming capital markets have come into effect and contribute to Beijing's extensive liberalization of the financial system.
The measures that came into force on Sunday will update the official regulations governing foreign access to the country's huge capital markets.
They allow much better access to China's onshore futures markets, an important tool for hedging stock market positions as well as speculating about price movements. Foreign investors can also borrow their holdings of stocks traded in Shanghai and Shenzhen so that others can use them to take bearish positions.
The move is the final step in opening up China's vast but tightly controlled financial markets. Through this process, the country forges closer ties with Wall Street despite increasing geopolitical tensions with the US.
The new rules, which combine the existing systems for qualified foreign institutional investors, aim to simplify and expedite the process by which international investors apply for access to Chinese markets, as well as remove restrictions on the size of positions they can take.
Record high for the Chinese stock market
"If you're a financial institution, fund manager large or small, China is now an open market for you," said Fraser Howie, an independent analyst and expert on the country's financial system. "It's really a high point in openness and capital market development [for China]."
China has given foreign investors access to its onshore stock markets through the QFII program for the past two decades, as well as a Stock Connect program launched in Hong Kong in 2014.
But Beijing's appetite for financial reform has picked up pace this year as foreign money flooded into an economy that has bounced back sharply from the coronavirus pandemic.
Chinese stocks hit a record more than $ 10 billion in October, and foreigners own their largest share of the country's bond market to date. In September, Chinese government bonds were added to one of the world's top bond indices, paving the way for estimated inflows of $ 140 billion.
The China Securities Regulatory Commission said the new rules, first announced in September, would expand the country's investment scope.
Kinger Lau, chief strategist for Chinese equities at Goldman Sachs, said improved hedging capability was "one of the very important prerequisites for expanding your market exposure."
The rules coincide with the conclusion of talks in Beijing last week on China's 14th Five-Year Plan, which highlighted the need for "self-sufficiency" in US-dominated technology sectors. A feud between Beijing and Washington over trade and access to cutting edge technology contrasts with China's efforts to open up its markets to foreign investors.
"Perhaps the US-China tensions or the pressure coming on board could be a catalyst for the Chinese authorities or regulators to carry out further reforms," added Lau. "You have to reform and open up to address all of these external challenges."
Additional coverage from Wang Xueqiao in Shanghai