China expands US access to domestic stocks

The two-day Strategic and Economic Dialogue - a high-level meeting between the United States and China covering a range of regional and economic issues - saw China making key promises like giving the US a 250 billion yuan ($38 billion or 33 billion euros) investment quota to allow the world’s number one economy a stronger foothold in the Asian giant’s domestic markets.

It’s the first quota to be granted to the US under the so-called Renminbi Qualified Institutional Investor program, and the largest one given to a single jurisdiction after Hong Kong.

In turn, the quota will help China push for wider use of the yuan in the US and around the world - although the Chinese central bank was vague on details, such as the timeframe of implementation. The two countries are also to each select a bank to act as yuan clearing houses.

Some analysts say that the quota increases the likelihood that Chinese shares will be included in the MSCI basket, whose indices are widely used as benchmarks for international stock market performances.

"But its implementation depends on how widely the yuan is used in the US and how much interest US investors have toward Chinese stocks and bonds," said Ivan Shi, head of research at Shanghai-based fund consultancy Z-Ben advisors.

Chinese regulators have been trying to revive flagging foreign investor interest after its equity markets nearly crashed mid-last year. Heavy-handed state intervention to prop up the market has done little to calm jittery investors.

But China now said sustained devaluation was coming to an end too - officials at the meeting repeatedly promised that there would be no more weakening the yuan against the dollar, which had led to volatility in financial markets across the globe.

China also agreed to limit steel production, which has been a sore point in external trade relations. The flood of low-cost Chinese steel on the global market has deeply hit foreign competitors and threatened jobs in steel companies the world over.

"To some extent, the worst is over," said Tian Yuan, an economist for the China Institute for Strategy, a Beijing research center. "With the central government’s efforts to further adjust the economic structure, leaning towards technological innovation, the progress in reducing excessive capacity will certainly continue."

But the two sides failed to reach consensus on what to do about China’s aluminum producers, which are among the industries exporting its products too cheaply to sustain fair competition.

"We didn’t agree on everything," said US Secretary of State John Kerry.

But Kerry stressed the importance of upholding healthy relations between the two countries.

"The US-China relationship is absolutely vital," he said. "It may well be the most consequential bilateral relationship of nations in the world."

jd/uhe (AP, Reuters)