DAVID GREENE, HOST:
As we've been hearing for a while, China is on its way to becoming the world's largest economy. But unlike the current world number one, the United States, China keeps very tight control over its currency. It does this to manage its value and protect against speculators. The government strictly limits how many renminbi anyone can move out of the country. Though, next week, China's going to begin to change this. As NPR's Frank Langfitt reports, this is a small move with big implications.
FRANK LANGFITT, BYLINE: On Monday, investors in Shanghai's stock market will be allowed to invest directly across the border into Hong Kong's stock exchange and vice versa.
JUN QIAN: Money has to come in and out of China much more freely than now.
LANGFITT: Jun Qian teaches at the Shanghai Advanced Institute of Finance.
QIAN: It's going to come gradually. And the Shanghai-Hong Kong Stock Connect can be regarded as a little - as a little pipe in that opening.
LANGFITT: A pipe going both ways, filled with cash. China needs to open that pipe to bring order to Shanghai's stock market, which years ago, one Chinese economist called, quote, "worse than a casino." Oliver Rui, a finance professor at Shanghai's China Europe International Business School, explains.
OLIVER RUI: The market is heavily manipulated by some group of investors.
LANGFITT: Do you invest in the Shanghai stock market?
RUI: Not directly.
LANGFITT: Why not?
RUI: They do not play by the rule. They trade on inside information.
LANGFITT: The hope is that foreign institutions will use the connect to invest directly in Shanghai's A-share stocks, bringing global investment standards to a market driven by speculators. Rui says future living standards here may depend on it.
RUI: We're still facing the risk of falling into a middle income trap. Without a well-functioned capital market, we may not be able to become a real, developed country.
LANGFITT: The pipe will also allow China to push its currency, within daily limits, out to the rest of the world. Chinese leaders want more financial influence. Qian says other economies tell them this.
QIAN: Well, you know, China, sorry. But basically, your financial system is closed. It's separated. You're not really a member of the global community.
LANGFITT: China hopes as the renminbi spreads around the globe, the country's financial power will more closely reflect the size of its economy. Frank Langfitt, NPR News, Shanghai.
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