The Tianjin Factor

Yesterday, the Mainland Chinese State Administration of Foreign Exchange "SAFE" announced a pilot scheme that allows Mainland individual investors to invest directly in the HK market through the Tianjin special zone. This is the result of lobbying by the former Governor of the Central Bank Dia Xianglong who is now the mayor of Tianjin.

See http://www.gov.cn/english/2005-10/09/content_75318.htm

The scheme will allow Mainland investors to open foreign currency accounts with the Tianjin branch of Bank of China (or, any branch of BOC acting as agent for BOC for the Tianjin branch) and trade HK stocks. This was met with enthusiasm by Mainland investors who see HK as a more rational and "cheaper" market compared to Shanghai and Shenzhen. SAFE announced earlier this year that individual Mainland citizens may exchange up to US$50,000 per annumin foreign currencies. The Mainland has over US$1.33 trillion in foreign currency reserves.

The expected increase in investments and turnover will boost the HK market, and will act as an effective arbitrage mechanism for the Mainland and HK markets and close the gap in valuations of dual listed companies. The next step is to allow HK investors to trade in the Mainland markets through another "pilot" scheme?