Plan for HK stock scheme submitted to China: Yam

BEIJING (Reuters) - Hong Kong has presented a plan to China's cabinet on how to handle the risks in a long-delayed scheme for mainland Chinese to invest directly in Hong Kong shares, the head of the Hong Kong Monetary Authority said on Thursday.

Joseph Yam, chief executive of Hong Kong's central bank, said he was hopeful the scheme would be launched after China's State Council, or cabinet, declared its satisfaction with the proposed measures, although he offered no timeline.

"These are risks that can be managed and can be managed quite effectively," he said.

Yam added that Hong Kong's proposal sought to address concerns raised at the highest level in China, by Premier Wen Jiabao.

Policymakers are worried that the scheme, dubbed the "through train", could flush cash out of China, setting back the development of its stock market. They are also afraid that novice mainland investors would be out of their depth in Hong Kong and could lose heavily.

The capacity of the Hong Kong market to handle an influx of funds has also been mentioned as a potential problem.

"We have submitted our views on how these risks can be managed to the State Council," Yam said. "I hope after they have been satisfied with these risk-mitigating measures, then the through train can start."

The State Administration of Foreign Exchange (SAFE), the currency regulator, unveiled the scheme on August 20, triggering a surge in Hong Kong shares in anticipation of a wave of Chinese money.

But it quickly became clear that SAFE had not secured the final approval of other government ministries.

Premier Wen said on November 3 that the plan was on hold pending review.

Yam has been working to convince Beijing that allowing mainlanders to invest in Hong Kong would create a safe channel for capital outflows from the Chinese market and help absorb some of its enormous liquidity.

(Reporting by Simon Rabinovitch, editing by Ken Wills)