Caixin
Jan 15, 2019 04:12 AM
FINANCE

China Doubles Foreign Investment Limit in Opening-Up Bid

The State Administration of Foreign Exchange said Monday it doubled the quota for foreign institutions to invest in China’s capital markets. Photo: VCG
The State Administration of Foreign Exchange said Monday it doubled the quota for foreign institutions to invest in China’s capital markets. Photo: VCG

China will double the investment quota for foreign institutions buying Chinese equities in another step toward fulfilling a promise to further open financial markets to foreign funds.

China will raise the quota for the Qualified Foreign Institutional Investor (QFII) program to $300 billion from $150 billion effective immediately, the country’s foreign exchange regulator, the State Administration of Foreign Exchange (SAFE), said Monday in a statement.

The expansion of the dollar-denominated investment program will grant foreign investors greater access to the world’s third-largest stock market and third-largest bond market, as China has long pledged to further liberalize its financial markets.

The Monday expansion is the first QFII quota increase since July 2013, when the ceiling was raised to $150 billion from $80 billion.

In June, SAFE removed a 20% monthly cap on moving assets out of the mainland for participants of QFII and its yuan-denominated sibling, the Renminbi Qualified Foreign Institutional Investor (RQFII) program.

Caixin learned last month that the nation’s top securities watchdog was considering expanding the investment scope for foreign institutional investors via QFII. Measures under discussion include allowing eligible QFII investors to buy private investment funds set up by wholly foreign-owned enterprises (WFOEs) from foreign asset managers and enabling QFII investors to hire WFOEs as investment advisers, Caixin learned.

In April last year, SAFE also increased quotas for the Qualified Domestic Institutional Investor (QDII) program — which allows Chinese enterprises to invest in offshore securities — as well as two other pilot programs that allow Chinese investors to put their money into overseas assets.

Expanding inflows

China introduced the QFII program in 2002 as one of the paths for foreign institutions to invest in China. However, in recent years it has been partially displaced by the launch of the stock- and bond-connect programs between Hong Kong and mainland markets, which have more liquidity and offer more investment flexibility.

Data from SAFE showed that by the end of December, a total of $101 billion of quotas have been approved for QFII investors.

Chinese regulators have stepped up efforts to attract foreign capital into domestic stock and bond markets. Last year’s inclusion of domestic A-shares into the MSCI Emerging Markets Index was seen as a key step to increase the exposure of Chinese stocks to global fund managers. MSCI, the world’s most-tracked stock index, said it will further increase the weight of China A-shares in its global indexes this year.

Meanwhile, Bloomberg said it will add China’s yuan-denominated government and policy bank bonds into the Bloomberg Barclays Global Aggregate Index starting next year, marking the Chinese debt market’s first inclusion by a major global gauge. Analysts say they expect the inclusion to trigger a dramatic capital inflow into China’s bond market.

Foreign capital’s presence in China’s financial markets has remained relatively small. Foreign investors held about 6.7% of the total market cap of China’s stock market by the end of September, up from 5.16% at the beginning of 2018. Holdings of overseas investors still account for less than 2% of the entire Chinese bond market, official data show.

During the weekend, Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC), predicted that there would be a roughly 600 billion yuan ($88.8 billion) increase in foreign money invested into mainland stocks in 2019. That would be double this year’s increase.

Contact reporter Han Wei (weihan@caixin.com)

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