China to be cautious with HK investment plan-Wen

BEIJING, Nov 24 (Reuters) - China will proceed prudently with plans for a landmark scheme permitting mainland residents to invest directly in Hong Kong stocks for the first time, Premier Wen Jiabao said in remarks reported on Saturday.

Wen told visiting Hong Kong Chief Executive Donald Tsang on Friday that Beijing would move forward "cautiously and pragmatically" with the initiative to ensure the financial stability of Hong Kong and the mainland, the China Daily said.

The State Administration of Foreign Exchange (SAFE), the currency regulator, announced plans for the direct investment programme on Aug. 20.

Shares in Hong Kong promptly surged in anticipation of a wall of Chinese money, but it quickly became clear that SAFE had not secured the final approval of other government ministries.

Wen confirmed on Nov. 3 that the scheme, dubbed the "through train", was on hold while Beijing examined the potential risks.

Policy makers are gradually relaxing China's capital controls to ease upward pressure on the yuan. But they are concerned that novice mainland investors would be out of their depth in Hong Kong and could lose heavily. Others worry that too much cash could flow out, undermining support for the domestic bourse.

The South China Morning Post quoted Tsang as saying: "I believe we should be patient. What is clear is that the policy and decision remain unchanged. But it is worth looking at practical matters such as its operation and in particular the problem of risk management to prevent excessive volatility in the two markets."

Several brokers now say the scheme is unlikely to go ahead before the first or second quarter of 2008.

"I believe when it is implemented, it will develop very smoothly," Tsang said, according to the SCMP.