China looks for capital ideas

In order to finance its social security and pension deficit, the Chinese government is pondering how to divest itself of its enormous holdings in state companies.

One solution is the creation of a gigantic fund, modeled on the Hong Kong Tracker fund. To increase demand and prevent a slump in the share price, it could open the domestic A share markets, so far strictly off limits, to foreign investors, as well as expand its domestic institutional investor base. This would make the B share market, the foreign currency market open to foreigners, obsolete.

Under China's capital markets reform program and under pressure from its accession...

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