New York-based MSCI, the world's largest stock index provider, has included China in its key emerging markets list. A government spokesperson hailed the decision as confidence in China's future economic prospects.
MSCI has agreed to include mainland China-listed shares in its benchmark of emerging markets after rejecting such an inclusion on three previous occasions.
The agreement to admit mainland-listed big-cap stocks allows them to be traded by foreigners directly for the first time. Chinese shares will join the index in June next year.
China on Wednesday hailed the decision. "We applaud and appreciate MSCI for making such a decision," said Zhang Xiaojun, spokesman for the China Securities Regulatory Commission.
"It showed international investors' confidence in a stable Chinese economy with better prospects and in the steadiness of China's financial market," Zhang said.
China, which has the world's second-largest stock market, is on a mission to raise the country's international profile. But just two percent of the country's stock and bond wealth is held by foreigners, who are put off by the possible restrictions to investment.
Now, by actively encouraging foreign investment via the blue-chip, Shanghai or Hong Kong indexes, China could experience a boom of up to $12 billion from international investors.
MSCI said the move has "broad support" from international institutional investors and was the result of loosening of restrictions enacted by China on foreign ownership of "A" shares - yuan-denominated stock in mainland China-based companies. Ownership of the shares had once been limited to mainlanders.
China has been gradually opening its A share market to foreigners, allowing them to trade selected stocks in Shanghai and Shenzhen through mechanisms linking those markets to Hong Kong.
Overseas investors have also been allowed to buy A shares through a quota system.
"International investors have embraced the positive changes in the accessibility of the China A shares market over the last few years and now all conditions are set for MSCI to proceed with the first step of the inclusion," added MSCI chief Remy Briand.
However, observers said the small number of firms taking part - 222 large-cap firms will join initially meaning they make up just 0.73 percent of the overall index - meant there would be little early impact.
London-based consultancy Capital Economics described it as "a token inclusion," while ANZ Research said "the more progress that Chinese regulators make on liberalisation, the greater the potential for further inclusion". Nevertheless, admission to the index was seen as a good start.
rd/sri (AP, AFP)