**Table 4 Brief Chronology of China's Financial Liberalization Since 1990**

|1990<br>April 1990<br>May 1990<br>1991|Shanghai Securities Exchange was officially recognized.<br>An amendment to the law on Chinese foreign equity joint ventures, stipulating that the State would<br>not nationalize joint ventures, simplifying the approval procedures for new foreign investment<br>enterprises, and extending the management rights of foreigners was passed.<br>Shanghai was opened to FDI, with tax incentives similar to special economic zones.<br>The State Council issued regulations for the sale and transfer of land use rights in cities and towns<br>to encourage foreign investors to plan long-term investment.<br>Shenzhen Stock Exchange was officially recognized.|
|---|---|
|April 1991<br>1992|The tax of ten percent on distributed profits remitted abroad by foreign investors in foreign funded<br>enterprises was eliminated, unifying the tax rates on Chinese foreign joint ventures and entirely<br>foreign enterpises. Also, more tax benefits were given to priority industrial sectors.<br>The B-share market was launched.|
|March 1992|Foreign investment was further liberalized, with the opening of a large number of in-land and<br>border areas.|
|July 1993<br>1997|Qingdao Beer was the first Chinese firm to list in the Hong Kong Stock Exchange.<br>Financial institutions were allowed to issue bonds in international markets with SAFE approval.|
|February 1999<br>February 2001|A private Chinese firm was listed abroad for the first time.<br>Domestic investors were allowed to purchase B shares with existing foreign currency deposits.|
|June 2001|Domestic investors were allowed to purchase B shares with new foreign currency deposits.|
|September 2001|Restrictions were liberalized on purchases of foreign exchange for advance repayments of loans and<br>debts.|
|April 2002|A new four-tier classification was introduced, defining sectors in which foreign investment is<br>encouraged, permitted, restricted, or banned. As a result, sectors that were previously closed to<br>foreign investment were opened.|
|December 2002<br>January 2003|<br>Qualified foreign institutional investors were allowed to purchase A shares, subject to restrictions.<br>Permission from the SAFE was no longer required for domestic residents to borrow foreign<br>exchange from domestic Chinese financial institutions.|
|November 2003<br>2004|Insurance companies were allowed to use their own foreign exchange to invest in international<br>capital markets.<br> <br>In some provinces and regions, the limit on outward direct investment was raised to $3 million,<br>from $1 million.|
|January 2004|The asset requirements for Hong Kong (China) banks to open branches in mainland China were<br>lowered to $6 billion, from $20 billion. Other restrictions on Hong Kong banks were eased too.|
|June 2004|Domestic foreign-funded banks were not permitted to convert debt contracted abroad into RMB,<br>and were not allowed to purchase foreign exchange for servicing such debts.|
||Capital remitted through FDI could only be converted to RMB upon proof of domestic payment|
|December 2004<br>2005|A foreign company was listed in the Shanghai Stock Exchange for the first time.<br>Foreign heirs were allowed to take inheritance out of the mainland. Emigrants were allowed to take<br>legally obtained personal assets with them.|
|February 2005|Domestic residents were allowed to set up companies abroad to facilitate round-tripping investment<br>or overseas financing (issuing bonds and stocks). This made it easier for private firms to access<br>international capital markets and for foreign investment banks/funds to provide financial services to<br>Chinese firms|
|April 2006|The People's Bank of China announced the qualified domestic institutional investor (QDII) program,<br>under which mainland Chinese financial institutions are allowed to invest in offshore securities. It<br>stipulated that: i) qualified banks may assemble the funds in domestic currency from domestic<br>institutions and individuals and invest these funds in fixed income products in international market,<br>ii) qualified security firms may assemble funds from institutions and individuals and invest in<br>international capital market including stocks, and iii) insurance companies may invest in foreign<br>fixed income and monetaryinstruments.<br>.|

Source: Prasad and Wei (2005) and Zhao (2006).