Published by Asia Asset Management – 16th Jan 2019
China has doubled the quota for a scheme that allows foreign institutional investors to invest in its capital market, the first increase in four years as Beijing moves to further loosen regulatory controls.
The State Administration of Foreign Exchange (SAFE), China’s foreign exchange regulator, raised the limit for the qualified foreign institutional investor or QFII programme to US$300 billion from $150 billion.
SAFE says in a statement on January 14 that the move is to “accommodate overseas investors’ demand for China’s capital market”.
The regulator last raised the quota in July 2015, from the then $80 billion.
The QFII scheme was introduced in 2002 and the first quota, for $17 billion, was granted the following year.
Since then, SAFE has granted quotas totalling $101.06 billion to 287 foreign institutions up to the end of 2018, according to figures from the regulator.
“SAFE has introduced several reforms to foreign exchange management over the last two years, including allowing QFIIs to hedge against foreign exchange risk in China,” the statement says, adding that “these reforms have made the QFII investment channel more convenient for overseas investors”.
The higher limit can provide greater capacity for foreign investors to access China’s capital market, according to Patrick Wong, head of China sales and business development at HSBC Securities Services in Hong Kong.
Although these investors have other ways to enter China’s stock and bond markets, some asset classes are only accessible via schemes such as the QFII, Mr. Wong says in a report.
“We foresee that China’s capital market will continue to open up. Investment scope will be further relaxed, so foreign investors in the long run can invest into domestic asset classes like local investors,” he writes. “Overseas investors are getting ready and familiarising themselves with the onshore investments dynamics.”
According to a Hong Kong-based fund analyst, Beijing is broadening the capacity of its foreign investment channels ahead of the inclusion of Chinese stocks into index provider FTSE Russell’s indices this year. Rival provider MSCI Inc. added China A-shares – stocks of companies listed on the Shanghai or Shenzhen bourses – to its benchmark indices in 2018.
Beijing wants to be well prepared for growth in foreign investments as more index providers look to incorporate A-shares into their indices, the analyst tells Asia Asset Management, speaking on condition of anonymity.
“The increase in QFII quota will not trigger significant international capital flows into A-shares, but foreign ownership in A-shares market will gradually increase over time, which helps stabilise the market volatility,” he says.
