Hong Kong has submitted a proposal to the Chinese central government for mainland individuals to buy shares directly on the city's stock market, paving the way for a pilot program that has been plagued by repeated delays.

The program will be introduced after the proposal's approval, Hong Kong Monetary Authority Chief Executive Joseph Yam said yesterday. There is no timeline yet, he said, speaking at a press briefing on the sidelines of a conference in Beijing.

The central government on August 20 said mainland individuals will be able to buy Hong Kong equities directly for the first time through an initiative known as the "through train."

Hong Kong's Hang Seng Index has surged 31 percent since then, prompting Chinese Premier Wen Jiabao to say on November 3 that the central government needed more time to assess the risks to Hong Kong's financial system.

"The through-train program poses risks for the stock market, and investor interests must also be protected," Yam said. "These are risks that can be managed, and managed effectively."

China may impose an investment ceiling of US$30 billion on the full pilot program, Credit Suisse Group said in a November 12 report.

Conditions for Chinese mainland individuals to invest directly in Hong Kong stocks should be arranged as soon as possible, Yam said.

"China needs more domestic funds to flow overseas in order to seek higher returns," Yam said.

"But opening the capital account will not be simple and will require coordination between foreign exchange regulators. I hope to see these issues straightened out as soon as possible," Yam said.

Hong Kong stocks fell to a one-month low on November 12 after the Credit Suisse report said the through-train program will be delayed until the second quarter of 2008.

"Banks must offer more equities-related products as clients take their money out of deposits and into the stock market," Li Fuan, who oversees product innovation at the China Banking Regulatory Commission, said at a conference in Beijing yesterday, adding that the regulator is "enthusiastically preparing" for the through-train program.

Banks in China sold about US$1 billion of products linked to the so-called qualified domestic institutional investor program as of the end of October, the regulator said in materials distributed at the conference earlier yesterday.

(Shanghai Daily December 14, 2007)