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Finance & Economy

Foreign investors in China get a break


China will relax controls on qualified foreign institutional investors (QFIIs) soon, following a decision to nearly triple the amount they can spend.

Regulators plan to scrap the requirement that a QFII invest at least half of its funds in stocks, said two people briefed by government officials about the matter.

They said waiving the rule would allow the foreign institutions to earmark more funds for investments in futures and other derivatives.

QFIIs, subject to the approval of the authorities, can exchange a certain amount of foreign currency into yuan to invest in Chinese equities and bonds.

Currently, they must invest half of their funds in A shares while holding no more than 20 per cent in cash.

The requirement resulted from officials’ worries that the funds, betting on an appreciation of the Chinese currency, would prefer to hold yuan deposits rather than buy yuan-denominated shares.

“The regulators are attempting to give the foreign funds more freedom in allocating their QFII assets. It is a sign that the government is now determined to allow them access to futures and other derivatives,” said analyst Cindy Qu at fund consultancy Z-Ben Advisors.

The QFII scheme, launched in 2003 in an attempt by Beijing to introduce long-term foreign investors to the volatile mainland stock market, received a shot in the arm early last month as Beijing announced an increase in the overall quota to US$80 billion from US$30 billion.

QFIIs are still barred from playing commodity or stock-index futures.

Authorities have been planning since 2010 to let QFIIs put as much as 10 per cent of their investment quotas into stock-index futures.

QFII funds, most of which are managed by big global institutions like UBS and Morgan Stanley, could provide a stabilising force to the fledging equity-derivative market.

Beijing will also simplify approval procedures and lower the threshold to attract more overseas funds to the A-share market, people familiar with the plans said.

Regulators will also allow different units under the same financial group to apply for QFII quotas separately. According to existing rules, a single QFII can apply for a quota of up to US$1 billion.

But the people said hedge funds would not be welcome in the QFII scheme, because regulators were eyeing only long-term investors.

It was reported last week that regulators were expected to lower the threshold for QFIIs, a move likely to give hedge funds access to A shares.

Wang Lin, a director of the China Securities Regulatory Commission‘s fund regulation department, was quoted by Xinhua as saying QFIIs were encouraged to make long-term investments on the mainland.

Beijing has granted QFII status to 167 foreign institutions, with a combined US$26 billion quota.

Among them, 37 QFIIs had applied to increase quotas to buy more A shares, the official Shanghai Securities News reported.

Daniel Ren
South China Morning Post
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About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee

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2 thoughts on “Foreign investors in China get a break

  1. Reblogged this on Craig Hill.

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    Posted by Craig Hill | May 15, 2012, 9:38 am

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  1. Pingback: China opens door to foreign hedge funds « China Daily Mail - July 11, 2012

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