Chinese regulators are mulling expanding quotas for Qualified Foreign Institutional Investors, according to China Securities Journal. This may mean a step to the liberalization of Chinese stock and bond markets, where foreigners have limited access.
At the moment foreign investors need to get approval from the government to work with country’s stocks. Yet, this may change as China has been looking for ways to attract foreign capital. The country’s exports are dropping, and companies are also witnessing a decrease of industrial orders. Combined with the economic crisis in the Euro zone, all of this has led to a fall in direct foreign investment. For instance, EU investments have dropped by 33.2% to $906mln in the first two months of 2012. While the total amount of foreign investment has reached $17.7bln, which is 0.6% less than in 2011. Introduced in 2003 the QFII program sets a general $30bln limit on foreign investment institutions. Since then, under QFII, the country’s authorities gave out 129 licenses worth $24.55bln. This includes nearly $3bln which has been approved this year. However, analysts say, the raising of the $30bln ceiling won’t automatically solve the problem, if the current licensing procedures remain in force. But there has been some progress on this matter as well. For instance, concerning investments made using the Chinese national currency – renminbi, primarily measured in yuans. The Renminbi Qualified Foreign Institutional Investors (RQFII) program allows investors to channel off-shore renminbi back into Chinese domestic markets. Within its framework, Hong-Kong funds have been granted access to investment in China. Analysts explain, the step was aimed at increasing the use of the yuan in international trade deals and fighting the dependency on the U.S. dollar. According to the Kommersant daily, economists at the People’s University of China are predict the Yuan will become freely convertible between 2016 and 2020: “The Yuan’s internationalization is already in full swing – we’ve seen 20-fold growth in 2011, compared to 2010 (0.02% and 0.41% accordingly). So by 2020 these figures could reach 20%”. Earlier, Chinese authorities have been stimulating investment from the country, curbing domestic inflation rates and to prevent the nation’s economy from overheating. Last year the amount of outgoing investment reached $74.95bln, which is more than twice that of the QFII. Inflation in China is expected to reach 3.3% in 2012 – much less than the 5.4% in 2011. Further steps by the Chinese authorities to attract foreign investment are much expected.