China Official Says A Shares in MSCI ‘Historical Certainty’

The inclusion of yuan-denominated A shares in a MSCI Inc. index is a “historical certainty” that will eventually happen, a Chinese securities regulatory official said just days before an announcement on the components of the benchmark.

Qi Bin, head of the China Securities Regulatory Commission international affairs department, made the comments during a panel Sunday at an annual government-backed financial industry forum held in Shanghai’s Lujiazui financial district. The event featured People’s Bank of China Deputy Governor Zhang Tao and other officials from the nation’s banking and insurance industry regulators.

“China’s A share market is the world’s second-largest market; it is also the largest emerging capital market and the fastest-growing one,” Qi said. “So, theoretically a global index without A shares is incomplete.”

The comments marked the first time an official of the securities regulator has spoken out ahead of next week’s review by New York-based MSCI on whether yuan-denominated A shares will be added. The decision, to be announced June 14, could attract billions of dollars in inflows to buyers into Chinese stocks and bolster a market that’s been the world’s worst performer this year.

In May, the Shanghai and Shenzhen exchanges issued rules restricting arbitrary trading halts, which MSCI had flagged as one obstacle blocking a possible inclusion of yuan-denominated shares. Trading halts came under fire after suspensions shut down half the stock market as officials struggled to stop a $5 trillion selloff last summer.

Qi said improvements to the trading-halt system were part of Chinese government efforts to facilitate MSCI inclusion. He also cited freer money transfers allowed by the foreign-exchange regulator and greater recognition of beneficiary ownership. Qi didn’t address MSCI insistence on removal of restrictions on investment and hedging vehicles by international investors.

“The inclusion in MSCI is a historic certainty -- it will happen eventually,” Qi said. “You don’t want to wait too long.”

A second CSRC official, speaking at the same event, kept investors guessing about the introduction of a planned link between Hong Kong and Shenzhen stock markets, similar to Hong Kong’s program with the Shanghai bourse started in 2014. CSRC Vice Chairman Jiang Yang said the link, which Premier Li Keqiang said in March would kick off this year, would begin at the “appropriate time."

A feasibility study into a third link, between the Shanghai and London exchanges, is currently underway, Qi said.

The inclusion of some A shares in a MSCI index will help make a link between the Shanghai and London stock exchanges more possible, London Stock Exchange Chief Executive Officer Xavier Rolet said Sunday at the same forum.

Speaking earlier in the day, PBOC’s Zhang said that recent risks that had emerged with online financing can’t be ignored.

“Shortfalls in traditional financial services will lay ground for new forms of services,” Zhang said. “There’s room to improve financial services as a whole, but the scale of online finance has its limit."

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net, Helen Sun in Shanghai at hsun30@bloomberg.net, Karen Zhang in Shanghai at kzhang166@bloomberg.net. To contact the editors responsible for this story: John Liu at jliu42@bloomberg.net, Stanley James