China's leaders are stuck between a rock and a hard place. They are desperate to open up its economy to outside capital but at the same time keen to slow the creep of capitalism which they fear may threaten their own grip on power. So China appears to have settled on a piecemeal opening up of its economy to the outside world, illustrated by two new initiatives this week.
On Monday a raft of new infrastructure projects worth an aggregate $318bn (£206bn) was announced as the latest effort by the authorities to shore up the ailing growth rate of the Chinese economy. The government is inviting private investment in the 1,000-plus projects proposed across 23 regions of the country. Projects include infrastructure staples such as road and rail links between cities as well as three new metro projects in Beijing and a number of water-related initiatives.
News of the infrastructure move bolstered share prices on China's main exchanges earlier this week as investors welcomed signs of further government stimulus, with the Shanghai Composite index adding 3.4 per cent on the day. This consolidated what has already been a soaring performance from Chinese shares so far this year - the secondary Shenzen Composite has now more than doubled since the turn of the year and risen 176 per cent in the past 12 months.
The second initiative announced this week saw China deepen its links with Hong Kong by allowing fund management groups based there to sell directly into the Chinese mainland for the first time, a move described by one analyst as the 'Holy Grail' for foreign fund managers. Opening up a potentially huge market, it will bolster major fund managers with a strong Hong Kong presence with 100 funds from Hong Kong already qualified before the 1 July deadline. Those who don't yet have exposure are likely to be on the lookout for partners to get them into the Chinese market, although funds need a 12-month record and at least RMB200m (£32m) in assets under management to qualify. Banks and financial services partners would be the obvious choice, but China's internet giants such as Alibaba could also provide potential distribution channels and Alibaba has already qualified as a third-party seller of funds.
Following the Shanghai-Hong Kong Stock Connect initiative begun in November, the mutual fund recognition further deepens economic ties between China and its 'Special Administrative Region'.
