August 20, 2007 - The SAFE recently approved a pilot program for direct foreign portfolio investments by domestic individuals, in which individual residents can directly conduct foreign portfolio investments with proprietary foreign exchange or with foreign exchange purchased with RMB through relevant channels in the pilot areas.
With the rapid and stable development of China 's national economy these years, the income levels of domestic individuals have improved substantially and the diversification of their investment demands has been increasing day by day. In addition, China 's abundant foreign exchange capital offers favorable conditions for direct foreign portfolio investments by domestic individuals.
The SAFE chose the Tianjin Binhai New Area to pilot direct foreign portfolio investment by domestic individuals. It main contents include: First, individual residents can directly invest in foreign securities with proprietary foreign exchange or with foreign exchange purchased with RMB. The investment size is not limited to the foreign exchange purchase quota of USD 50,000 per year stipulated by the Detailed Rules on Measures for the Administration of Individual Foreign Exchange. Second, the investment will be handled through the BOC Tianjin Branch and Hongkong BOCI Securities Limited. Investors should open foreign exchange accounts for individual foreign portfolio investment in the BOC Tianjin Branch and entrust it to open  corresponding securities agency accounts in Hongkong BOCI Securities Limited. Third, during the early stage of the experiment, investors can invest in securities publicly listed in Hong Kong Exchanges and Clearing Limited (HKEx). Fourth, the principal and gains of the foreign exchange purchased with RMB can be held in the form of foreign exchange or the investors can sell the foreign exchange to the banks where they open the accounts. If the investors want to sell the principal and gains of the proprietary foreign exchange, the corresponding affairs should be handled according to the Detailed Rules on Measures for the Administration of Individual Foreign Exchange. Fifth, the principle of assuming the risks by the investors is implemented. The business agencies should faithfully point out the investment risks. Meanwhile, they should strengthen internal risk control, carry out relevant laws and regulations, improve the information disclosure mechanism, and guarantee the legal rights and interests of the investors.
The pilot program for direct foreign portfolio investment by domestic individuals will help promote the orderly development of individual foreign investment and accumulate related supervision and risk prevention experience. The lifting of the exchange restrictions on individual foreign investment is a helpful trial for the optimization of the asset allocations of domestic individuals, dispersing investment risks and increasing investment gains through the international financial market. Meanwhile, this trial is an important measure to deepen the reform of the foreign exchange administration system, to expand the outflow channel of foreign exchange capital, and to promote a general equilibrium in the balance of payments.