China’s "through train" direct individual investor scheme has died an undignified death after being included as one of several proposals deemed no longer valid by the State Administration of Foreign Exchange (SAFE).
Announced in August 2007 by the foreign exchange regulator, the scheme was originally intended to allow mainland nationals to invest directly in Hong Kong-listed stocks and help alleviate some of the growing pressures caused by an excess of cash circulating in a then-bubbling economy.
The "through train" was widely celebrated as a bold move, as it threatened an opening of the capital account, and a significant shift in Beijing policy.
Champagne corks in Hong Kong were flying, with the Hang Seng rising 55% to a record high in the three months following SAFE’s announcement of the plan. But no sooner had the bottles run dry than the train’s wheels began to slow to a halt.
Designed as a trial program in which seemingly anyone could buy Hong Kong stocks through an account with Bank of China in Tianjin, bitter infighting soon erupted between various bodies in Beijing over who would control it and how. The struggle was put to an end by Premier Wen Jiabao, who warned of the impact the sudden rush of cash would have on the southern territory’s market.
The courageous plan was subsequently put on hold; SAFE’s announcement that it has now "expired" was only surprising in that so many people had completely forgotten about it.
Such is the way with many of Beijing’s ambitious plans, and is most likely why the recent news that the State Council gave the China Securities Regulatory Commission (CSRC) approval "in principle" to launch index futures met with a fairly muted reaction. The regulator’s later approval for the China Financial Futures Exchange (CFFEX) in Shanghai to set the whole thing up equally received a subdued response – hardly surprising given the CSRC’s details of the timing of a launch of index futures: "[The] specific launch time shall be made by the CFFEX in line with the market situation and its preparation work following the aproval of certain contracts by the regulator."
How long will the wait be for futures? The State Council said three months, but will this train leave on time?