Key Words: QFII; Qualified Foreign Institutional Investment;Guo Shuqing; capital market;A-share markets
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China can increase the quota for foreign institutions allowed to invest in the country's securities market by as much as 10 times in a bid to speed up the reform of its capital market, its top securities regulator said yesterday.
"The combined value of foreign investments under the Qualified Foreign Institutional Investment and Renminbi Qualified Foreign Institutional Investment schemes accounts for only 1.5 to 1.6 percent of China's A-share markets," Guo Shuqing, chairman of China Securities Regulatory Commission, told a conference in Hong Kong yesterday.
"The number should be multiplied by nine to 10 times in the future," Guo said.
Tong Bin, an analyst with Huaan Securities, said: "Currently, China's stock market is dominated by retail investors who represent 90 percent of the total investors. But the future trend is that institutional investors will take up the majority of the market."
Stock markets in China are largely out of bounds for foreign investors because of tight capital controls. Guo said China's "long-term policy" was to open capital markets.
He said that while China doesn't lack capital, authorities want to develop more "open and inclusive" capital markets.
"Our goal is to make it easier for non-residents to issue or trade securities in domestic markets," Guo said. "We will further increase the investment quota, reduce investment restrictions and lower the investment threshold for QFII and RQFII schemes."
Chen Li, an analyst with UBS Investment Research, said Guo's comments indicated regulators not only aimed to attract more funds to supplement capital in the country's stock market but also intend to take more market-oriented measures to promote capital market reform in the long term.
Launched in 2002, the QFII program is now the main gateway for foreign investors to invest directly in China's securities markets. The RQFII scheme, dubbed the "mini QFII," was introduced at the end of 2011 to offer overseas investors a channel to invest in mainland stock markets with offshore yuan.
Guo's comments came after a series of measures aimed at relaxing rules on foreign investment.
On December 14, China abolished the US$1 billion ceiling for sovereign wealth funds, central banks and foreign monetary authorities participating in QFII. No new upper limit has been specified.
Last April, the amount of money that foreigners can invest in the domestic capital market through the QFII scheme was expanded to US$80 billion from US$30 billion.
China has also sped the approval process for QFII applicants.
China's securities regulator issued QFII licenses to 74 foreign companies in 2012, compared to 29 in 2011 and 13 in 2010.
By the end of last year, China had granted QFII licenses to 209 foreign institutions and had allocated a combined QFII quota of US$37.4 billion.
The foreign appetite for Chinese equities has boomed as return of investment is improving due to the recent rally in the stock market which saw the Shanghai Composite Index surging 17 percent in just a month.
Guo also said yesterday that China was preparing a trial program that would give Chinese individual investors direct access to overseas capital markets as the country seeks a greater role for its currency in global markets.
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