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Foreign investment in capital markets made easier

January 15,2019

   
   

China's foreign exchange regulator said yesterday that the quota for the Qualified Foreign Institutional Investors program will be doubled to US$300 billion.

The move, approved by the State Council comes at a time when the country is further opening up its financial markets and the increased quota aims to meet overseas players’ rising investment needs in the world’s second-largest economy, the State Administration of Foreign Exchange said in a statement yesterday.

Introduced in 2003, the QFII scheme is designed to attract long-term overseas market participants including brokerages, fund houses and trust firms to use offshore yuan to directly invest and trade in publicly-listed domestic securities.

And since then, China has been relaxing rules to encourage more inbound investment.

In June 2018, SAFE, together with the People’s Bank of China, unveiled a new round of reforms in a bid to further encourage and help overseas investors.

Top regulators abolished the previous ceiling of 20 percent for remittances abroad and made it easier for foreign institutional investors to move money out of China.

Also, qualified foreign investors are now allowed to conduct foreign exchange hedging in China to offset forex risk.

A research team led by Li Lifeng at Sinolink Securities was quoted by the STCN as saying that the expansion of the QFII quota signals the government’s determination to further open its financial industry to the outside world and the announcement will be helpful in  attracting more foreign capital to the country’s capital markets.

But Li also warned that it remains to be seen to what extent the policy will lift foreign players’ confidence in the A-share market and the move is likely to have greater symbolic significance in the short term.

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