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China Allows Banks to Invest in Japanese Stocks

From Staff Reports

Commercial banks in China will be allowed to invest in Japanese stocks and funds, another sign that the government is loosening its historically tight investment policies.

A statement on the China Banking Regulatory Commission's Web site said the policy shift is intended to further diversify risk by allowing investors to participate in global capital markets, Bloomberg reported.  

China's qualified domestic institutional investors (QDII) program gives special access to overseas stocks. The program recently allowed mainland banks to invest in Hong Kong, Singapore and the United Kingdom.

A similar plan is in the works for U.S. and German governments, but like the announcement for Japanese investment, a timeline wasn't given.

Déjà Vu

But some could argue that it's already happening in the States.

Last October, in a trendsetting deal that gives U.S. investors a direct play on mainland China's fast-growing financial muscle, China Minsheng Banking Corp. Ltd. acquired a 9.9% stake in San Francisco's UCBH Holdings Inc. (UCBH), making this the first Chinese investment in a U.S. bank.

The deal called for Minsheng to pay as much as $317 million over the next few years for the 9.9% stake in UCBH Holdings.

But what makes the Minsheng transaction truly remarkable is that the Beijing-based bank isn't state-owned, and never has been. Formed by a group of investors in 1996, it was China's first private bank to list on the Shanghai Stock Exchange, the Financial Times reported.

Profiting from Chinese Banks

China banks are trying to expand worldwide. In August, Industrial & Commercial Bank of China Ltd., China's No. 1 bank by assets, acquired a 79.93% stake in Seng Heng Bank Ltd., which is the third-largest lender in Macau. Last year, China Construction Bank Corp., paid $1.2 billion for Bank of America Corp.'s (BAC) 17 branches in Macau and Hong Kong.

However, as our Money Morning research reports have repeatedly underscored, American investors can't invest in either of these two promising China-based stalwarts.

But now you can invest in UCBH. And through that bank, you could profit from the growth in China's financial services sector.

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