China signals further market reform as investors await new freedoms.

(From Agence France Presse)

A SARS-battered China this week sent a clear signal to investors that it plans to push ahead with financial liberalisation after granting approval to two foreign brokerages to trade securities in its domestic markets.

The landmark announcement gives Swiss banking giant UBS and Japan's leading brokerage Nomura Securities first dibs on China's 500-billion dollar markets, effectively Asia's second largest after Hong Kong.

Perhaps more importantly, analysts said, it sets the stage for further reform of China's Byzantine markets, indicating Beijing's willingness to continue opening up its financial markets.

"The signal is very clear. China is assuring the world it will not slow the pace of reform and liberalisation," Salomon Smith Barney economist Huang Yiping said.

While investors and analysts applauded the deal as confirmation of a reform-minded Beijing, another scheme to allow mainland Chinese investors to trade overseas shares returned to the fore, helping boost Hong Kong's embattled equities market.

This plan, commonly referred to as QDII or the "qualified domestic institutional investor" programme, was put forth by the Hong Kong government in 2001 as part of its bid to give the former British colony's flagging economy a shot in the arm of China's huge foreign currency reserves.