Although gambling is illegal in China – except at the baccarat tables of Macau and Hong Kong's twin horse tracks – there is one venue on the mainland where some say games of chance are officially sanctioned: the stock market.
But that could be changing. There is a growing feeling among investors that China's regulators are finally taking some of the necessary steps to transform the equity casino into a genuine international capital market.
Mark Makepeace, the chief executive of FTSE, said this week that recent market reforms could make China eligible for inclusion into international indices within three-to-five years, a move that would have wide implications both for the market and for global asset allocators.
Such a shift would be "very welcome by us as China fund managers . . . it would definitely help to diversify investor behaviour," says Shumin Huang, Greater China investment manager at JPMorgan Asset Management. Better access to mainland equities – known as A-shares – would also enable investors to broaden their exposure into a wider range of sectors of the Chinese economy, such as consumer and health-care stocks.
The China Securities Regulatory Commission, under its chairman Guo Shuqing, has introduced measures to improve the functioning of mainland equities markets in the past year. Just this month, the CSRC has made it easier to short individual companies, increased the pool of available stock options and widened the group of investors allowed to invest onshore through its renminbi qualified foreign institutional investor (RQFII) scheme.
The broader goal is to encourage more global funds into Chinese markets and to balance out the short-term focus of domestic investors. China's equity market currently has a heavy bias towards retail investors, while the fund management industry is hostage to a system of monthly or quarterly performance reviews that leave little incentive for long-term investment plans.
Chinese authorities believe that overseas capital, in the form of pension, sovereign wealth and asset management funds, could help change that, and have embarked on international roadshows to drum up interest. They have also lowered the requirements for those seeking licences to invest in mainland shares.
Working with index providers would be a guaranteed way of increasing foreign participation in mainland markets. The many global investors who track the indices compiled by the likes of FTSE and MSCI would be forced to buy into the Chinese market were it added to global and regional benchmarks, or had its weighting increased.
"This opening up could be a monumental change for global equity markets. It's important that investors aren't caught out," says Deborah Yang at MSCI.
China's current weighting in globally recognized equity indices is far lower than the size of its economy or its markets would imply. Mainland shares account for just 0.15 per cent of the FTSE Global index, 1.1 per cent of its Asia ex-Japan benchmark, and only 6 per cent of the FTSE China index. Without any restrictions on foreign investment, those figures would jump to 3.1 per cent, 19 per cent and 60 per cent respectively.
Similarly, China would grow from under a fifth to about a third of MSCI's emerging markets index, which is tracked by $1-trillion in funds, if investment limits were removed today. In FTSE's ranking of countries by combined market capitalization, China would rise to fourth from the current 11th spot.
There are some doubts, however, about the timing of the reforms.
"I'm not sure that high ranking Chinese officials could know the timetable for [opening up the market]. It's both a financial and a political decision," says one international fund manager with holdings in China. "They might have a long-term plan, but it is only directional."
Global investors complain not just about barriers to entry, but also corporate governance, shareholder rights and complex equity structures. The biggest challenge may not be to provide access, but rather to align the interests of shareholders, management and the state.
"If investors cannot make money through the rational investment process, the market will remain very cyclical and speculative," says Cong Li, chief investment officer at Mirae Asset Global Investments in Hong Kong. "Diversification of the investor base is a good thing, but more reform is needed. For A-shares to become a really good destination for international investors, it'll really take a long time."
Analysts say that radical measures will be needed to get Chinese markets up to international standards, prompting debate over how far and how fast China can realistically reform.
"We're moving in the right direction, but I don't get overexcited," says Gary Dugan, chief Asian investment officer at Coutts. "We're some years away from making it a credible market. It's going to be a hard slog and there's a lot things that could go wrong."