China to allow individuals to trade foreign shares directly

State Administration of Foreign Exchange (SAFE), China's foreign exchange watchdog, announced on its own website today that it will allow individuals to invest directly in foreign securities on a trial basis.

The trial is limited only in Tianjin Binhai New Area, which is touted as another Pudong New Area in China. According to the announcement, the investment quota will not be limited by current individual annual foreign exchange quota, namely US$50,000 per year. However, the investment has to go through Bank of China (BOC) Tianjin branch and Hong Kong Bank of China International (BOCI) Securities. Investors need to open foreign exchange investment accounts with BOC Tianjin branch and entrust BOCI Securities to open securities investment account. During the trial period, investors can trade securities listed on Hong Kong stock exchange.

It is the latest move of the government to divest official foreign reserves and reduce liquidity flowing into domestic stock markets.