Interbank Currency Market

The central banks of other countries will be allowed to directly invest in China's spot interbank foreign exchange market in a bid to attract more foreign investment. This was said by Chinese Premier Li Keqiang at the opening of the "Summer Davos" hosted by the World Economic Forum in September in Dalian, Liaoning Province. Li said it was a big step toward a fully convertible capital account, after foreign central banks were allowed to invest in the interbank bond market in July. He also said China will establish a cross-border yuan payment system by the end of the year to expand the currency's use in offshore markets. The yuan's exchange rate, he reiterated, will remain stable and the exchange rate reform will target a market-decisive regime instead of triggering a global "currency war."

Lifting the Stock Market

To guard against extreme market volatility, the China Securities Regulatory Commission (CSRC) announced it is drafting a plan to implement a circuit-breaker mechanism. It is a measure adopted by stock exchanges to temporarily halt trading to avert panic selling after the stock index has fallen by a certain percentage. The CSRC said it will control automated program trading, curb excessive speculative trading of stock index futures, and better regulate the margin financing business that allows investors to borrow money to trade stocks. "When the market experiences sharp and abnormal market volatility, the government will not sit back and let it go on," the CSRC said in its statement. The China Securities Finance, the state-owned margin lender, will continue to stabilize the market through various means when sharp market volatilities are likely to trigger systemic risks, the CSRC said.

Financial Leasing

The Chinese Government rolled out favorable measures on financial leasing to boost the sector and aid cash-strapped firms in September. The authorities will cut red tape, improve regulation, and gather support from other financial institutions to accelerate the development of the sector, a guideline released by the State Council said. The guideline is encouraging government agencies to purchase and provide public services through financial leasing and considering legislation to improve supervision. Financial leasing, cheaper and more tailored to borrowers' needs than traditional loans, is favored by startups and companies with weak credit. Local governments should take advantage of new measures, such as interest subsidies, to guide financial leasing businesses to better serve small and medium-sized enterprises, the guideline said.

Fewer Restrictions

China has lowered the threshold for foreign capital to invest in the property market, according to a statement by the Ministry of Commerce. Under the new rule, foreigners and overseas institutions' branches in China are allowed to buy houses for personal use. The Chinese Government has also lowered the required registered capital for foreign-funded real-estate enterprises. After the adjustment, the registered capital shall be no less than 40 percent of total investments between $10 million and $30 million; if the total investment is valued at more than $30 million, the ratio shall be over one  third. The previous ratio was minimum 50 percent for investment valued at more than $10 million. Full payment of registered capital is no longer a precondition for applying for domestic and overseas loans.

Fiscal Stimulus

Although growth uncertainties abound at home and abroad, China has plenty of policy options, especially on the fiscal front, to put the economy on track to meet the around 7 percent annual growth target. The Ministry of Finance has put forward multiple fiscal policies aimed at stabilizing growth, such as coordinating funds to accelerate project construction, activating idle money and widening tax breaks. Other measures include guidance funds for small and emerging businesses, and promoting public-private partnerships. China is battling a property downturn, industrial overcapacity, sluggish demand, and struggling exports, which dragged growth down to 7 percent for the first half of the year. On top of that, fresh pressures from capital market volatility, currency devaluation in emerging markets and slumping global commodity prices are further muddying growth prospects. To achieve the full-year growth target, the ministry said it will closely monitor the changing dynamics in the economy and respond with more effective and targeted fiscal policies.