UPDATE 2-China to relax conditions for SMEs to list in Hong Kong
* China to encourage HK financial firms to form JVs on mainland
* Regulator says will increase quotas on RQFIIs
* News caps week of announcements on ties between China and HK (Adds details about plans for yuan convertibility)
By Kevin Yao
HONG KONG, June 30 (Reuters) - China will relax conditions for mainland firms, especially small and medium-sized enterprises, to list in Hong Kong, the country's securities regulator said on Saturday, in a move that could encourage privately owned Chinese companies to tap funds in the city.
The regulator also said it would encourage qualified Hong Kong financial institutions to form joint ventures with mainland partners in stock and futures brokerages, fund management firms and stock investment consulting firms, capping a week of news on co-operation between the mainland and Hong Kong.
"Currently, the conditions on domestic firms to issue H-shares in terms of companies' size is still high and many medium- and small-sized companies cannot meet such requirements," China's Securities and Regulatory Commission (CSRC) said in Hong Kong.
"To support more domestic firms to list shares in Hong Kong, the CSRC will revise the relevant rules to relax the conditions on finance and size of companies under the premise of strengthening corporate governance and information disclosure."
The Hong Kong exchange has the final say in listing of any company in the city's bourse.
The Hong Kong stock exchange listing committee, which consists of lawyers, investment bankers and exchange officials among others, scrutinises listing applications before giving or denying approval. Among the conditions is a track record of profitability.
Several small and mid-sized Chinese companies have been starved of capital to pay for expansion as a result of a tight funding environment in the world's second-largest economy.
Hong Kong's rise to the top of the world's IPO market, as ranked by value, was supported by a rush of listings by Chinese state-owned enterprises starting in the early 2000s.
The China securities regulator also said China would increase quotas on the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme, which allows foreign investors to buy into Chinese mutual funds using offshore yuan.
"We will draw experiences from the pilot scheme and further increase the quota on RQFII and expand the scope of institutions involved in the pilot scheme, enrich products and relax restrictions on investment ratios," the regulator said.
In April, China raised the RQFII quota to 70 billion yuan ($10.99 billion) from 20 billion yuan.
It also allowed more of RQFII fund allotments to be invested in mainland equity markets instead of low-risk, low-yield fixed income instruments.
So far RQFII investors can only invest up to 20 percent of their offshore yuan in China's stock market with the rest in bonds.
Speaking at the same event in Hong Kong, Hu Xiaolian, vice governor of the People's Bank of China, said authorities had no immediate plan to raise the ceiling on yuan purchases by Hong Kong residents, currently at 20,000 yuan per day, but added the central bank may consider relaxing the limit in the longer term as real demand for the yuan rises.
The news came on the eve of the 15th anniversary of Hong Kong's return to China from British control, and after a raft of announcements on co-operation between the mainland and Hong Kong, aimed in part to strengthen Hong Kong's role as an offshore yuan centre.
President Hu Jintao is in Hong Kong this weekend to oversee the swearing in of a new chief executive on Sunday.
China said on Friday it will experiment with service sector reforms in a new business zone offering freer currency movements and Hong Kong professional standards, building the sort of test bed that turned the country into a manufacturing powerhouse.
The PBOC's Hu said the Qianhai financial zone in Shenzhen, just across the border from Hong Kong, will test the convertibility of the yuan in certain areas of the capital account.
The yuan is convertible on the current account, which covers trade in goods and services, but is only partially convertible on the capital account, which deals with capital movements.
"The experiment of yuan convertibility under the capital account in Qianhai will mainly be focused on the areas where the convertibility level is low, for example lending," Hu said.
Chinese officials have not given a fixed timetable for making the yuan freely tradeable, although the central bank has outlined the task of making it basically convertible by 2015. (Additional reporting by James Pomfret and Denny Thomas; Editing by Anne Marie Roantree and Neil Fullick)
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