Opening China's Capital Market
China's capital market got its start in the early 1990s，and in less than 30 years it has grown into the world's third-largest stock and bond market. In its more recent past it has evolved into a truly open market with a multi-dimensional framework. And as it develops in the future it will need to combine international experience and practice with Chinese characteristics to progress in a balanced manner.
In the early 1990s，when the stock market was still in its infancy，B-shares were launched to bring in foreign investors. The B-share market was specially designed for foreign investors with investments made in US dollars and Hong Kong dollars. But in 2001 the market was opened to domestic investors，and in subsequent years there were important gains in trading rules，market management and accounting standards.
An initial key step was the introduction of the qualified institutional investor system which has gradually become a key investment channel. In 2002，the State Administration of Foreign Exchange (SAFE)，the China Securities Regulatory Commission and other authorities launched the Qualified Foreign Institutional Investor (QFII) system，which allowed qualified foreign institutional investors to invest in the domestic A-share market within an approved investment quota. In 2011，in line with the internationalization of the renminbi，the Renminbi Qualified Foreign Institutional Investor (RQFII) program was introduced to allow qualified foreign institutional investors to use renminbi to make cross-border investments in domestic securities.
In 2016 and 2018，SAFE focused on simplifying foreign exchange management and facilitating currency convertibility. It has carried out two rounds of reforms of the QFII and RQFII programs，establishing the principle of open and transparent quota allocation. This has contributed to the smoother operation of the QFII and RQFII systems alongside of the Shanghai-Shenzhen-Hong Kong Stock Connect programs，which allow cross-border securities investments. These policies have basically removed restrictions on cross-border capital flows for foreign investors. As of the end of August 2018，a total of 299 QFII institutions had been approved with a total investment quota of US$100.5 billion. Nineteen countries and regions have become RQFII pilot areas with a total investment quota of 1.94 trillion yuan，and 199 RQFII institutions have been approved for a total quota of 628.7 billion yuan.
One of the key objectives of these reforms was to promote connectivity in the financial framework. In November of 2014，the Shanghai-Hong Kong Stock Connect was officially launched，linking the stock exchanges of Shanghai and Hong Kong. The program allowed investors from the China mainland and Hong Kong to trade in listed stocks on the other side of the border. There were limits on the scope of trading，but this ambitious program opened up a new channel for cross-border securities investment. It quickly won enthusiastic support from investors. In 2016，the Shenzhen-Hong Kong Stock Connect was launched to link the Hong Kong and Shenzhen markets.
The interconnection of the financial infrastructure promotes the direct connection between investors and products in the two markets，providing efficient cross-border investment services and eliminating cross-border capital exchange compliance requirements for individual investors. As of the end of August 2018，the Shanghai-Shenzhen-Hong Kong Stock Connect program had recorded net purchases of 571.6 billion yuan on the mainland market and net purchases of HK$795.3 billion in the Hong Kong market. The investment scale is now on a par with the qualified institutional investor programs.
Additionally，the mutual recognition of investment products has been an important advance in integrating the Hong Kong and mainland markets. The mutual fund recognition mechanism，which was put in place in 2015，complements the Shanghai-Hong Kong Stock Connect program and marks another policy breakthrough. In terms of foreign exchange management，there is no quota for any single institution or investment product. Registration and payments can be processed directly at a bank，and the mutual recognition of products enable residents on either side of the border to participate in cross-border securities investment and asset allocation.
More recently，the proposed introduction of depositary receipts has been a market focus. A link between the London and Shanghai stock markets is expected to be forged by the year-end. Eligible listed companies on the London Stock Exchange will be able to issue depositary receipts in China. Domestic investors will enjoy the same rights as holders of the underlying stock. Overseas registered companies will be permitted to list in China and this will be an important opening of the primary market ¨C alongside the previously opened secondary market. It is beneficial to the gradual integration of the share issuance mechanism as well as accounting and regulatory standards.
Another milestone already reached by allowing foreign investors to open accounts directly in the A-share market. In 2013，residents from the Chinese territories of Hong Kong，Macao and Taiwan who worked and lived in the mainland were permitted to open A-share accounts directly. In 2018，with the approval of the State Council，foreigners working in China were allowed to open A-share accounts directly. This is a separate investment channel for foreign individuals. Unlike other channels，there are no quotas or custody requirements. It is a relatively simple and convenient path for the purchase of A shares by individual investors from overseas working in China.
Bond Market Opening
The opening of the bond market was achieved long after the stock market opened its doors to foreigners. In some ways the bond market opening mirrors the stock market opening，although there are some crucial differences.
The bond market opening makes use of direct investments and creates links to foreign trading platforms.
In 2010，the People's Bank of China allowed foreign central banks and monetary authorities as well as renminbi clearing banks in Hong Kong and Macao，and renminbi settlement banks for cross-border trade to participate in the interbank bond market within the limits of a pre-set quota. In 2015，foreign central banks，international financial institutions and sovereign wealth funds were allowed to use renminbi to invest in the interbank bond market and the foreign exchange market. This was not subject to any quota limitations though transactions were recorded.
In 2016，the People's Bank of China issued its Regulations on Further Improving Investment in the Interbank Bond Market by Foreign Institutional Investors (PBOC document No. 3，2016)，thereby enshrining further liberalizations. These include no administrative licenses for overseas institutions or interbank bond market nor the imposition of quotas for individual institutions or the market overall by SAFE. There is also no need for approval for the remittance of capital of overseas institutions. The interbank bond market does not have a lock-up period for investments and there are no quota restrictions or remittance limits，which greatly facilitates investments by foreign institutions. In July 2017，on the 20th anniversary of the return of Hong Kong to Chinese rule，a bond market interconnection was put in place，