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China Makes Life Easier for Foreign Institutional Investors

The headquarters of the State Administration of Foreign Exchange in Beijing. Photo: VCG
The headquarters of the State Administration of Foreign Exchange in Beijing. Photo: VCG

* New rules will make it easier for foreign institutional investors to move money out of the country

* Qualified foreign investors will also be allowed to conduct foreign exchange hedging in China to offset risk from forex movements

China published revised rules Tuesday to ease restrictions on qualified foreign investors in the country’s latest move to liberalize its domestic capital markets.

The new rules (Link in Chinese), published by the State Administration of Foreign Exchange, take effect immediately and will make it easier for foreign institutional investors to move money out of the country.

The new rules scrap a 20% monthly cap on moving assets out of the mainland for dollar-dominated Qualified Foreign Institutional Investor (QFII) participants. A requirement for a three-month lockup period for investment principal under the QFII program and its yuan-denominated Renminbi Qualified Institutional Investor program is also being removed, SAFE said.

Investors in the QFII and RQFII programs can now send money out of China based on their investment needs and will also be allowed to conduct foreign exchange hedging in China to offset risk from forex movements, the regulator said.

The easing comes shortly after U.S. index publisher MSCI on June 1 officially included 226 China-listed shares in its Emerging Markets Index, a long-sought move for China to get greater exposure of its domestic capital market to foreign investors. Global funds that mirror the MSCI indexes will now be required to buy shares of China-listed companies included in those indexes.

Restrictions on market accessibility and repatriation have been the main concerns for overseas investors in China as the country’s capital account has not yet been fully opened.

China launched the QFII program over a decade ago to allow eligible global investors to invest in the mainland's capital market with certain quotas. In 2011, the sibling RQFII program was introduced to allow financial institutions to use offshore yuan to buy securities in mainland markets.

SAFE data showed that as of the end of May, 287 overseas institutions had received quotas totaling $99.46 billion under the QFII program, while quotas in the RQFII program totaled 615.85 billion yuan ($96.2 billion) for 196 foreign institutional investors.

China has been stepping up efforts to liberalize its capital market and open the door wider for both foreign and domestic investors. During the Boao Forum for Asia Annual Conference in April, China’s central bank governor, Yi Gang, indicated that the currently “stable” cross-border capital flows provided a window of opportunity for the government to push forward reforms.

In April, SAFE issued new quotas for the Qualified Domestic Institutional Investor (QDII) program — which allows Chinese firms to invest in offshore securities — for the first time in three years. The regulator also raised the quota for the QDII program as well as two other pilot programs that allow Chinese investors to put their money into overseas assets.

Contact reporter Han Wei (weihan@caixn.com)

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