RQFII quota to be raised by 200 billion yuan

China will soon more than triple the quota for the renminbi qualified foreign institutional investor scheme to accommodate rising demand from Hong Kong investors, but restrictions on capital inflows and outflows will remain.

Policymakers have "agreed in principle" to expand the quota of the RQFII programme by 200 billion yuan from the current 70 billion yuan, said Guo Shuqing, China Securities Regulatory Commission's chairman, at a press conference on the sidelines of the 18th party congress.

The pilot programme, launched last December, allows for yuan-based funds raised in Hong Kong to be invested in the mainland's stock and bond markets within a certain quota.

The increase was initiated by the Hong Kong authorities, Guo said, because the current quota did not match demand.

"Last week, before the 18th party congress started, three main Hong Kong government officials in charge of financial issues raised the issue," he said. Institutional investors were most welcome, he said, as they were more mature and had more expertise than individuals, who make up 84 per cent of the mainland's stock market participants and whose irrational transactions exacerbated price fluctuations.

"We are loosening restrictions to allow more institutions to take part in the RQFII scheme," said Guo. "But it is unrealistic to expect all restrictions to be removed."

The regulator also said the quota for the QFII scheme - the original dollar-denominated programme - could be lifted if its 80 billion yuan limit was reached.

General secretary and president Hu Jintao had said on Thursday that China would "gradually achieve" full yuan convertibility under capital accounts and develop a "multi-level" capital market.

But the international board, allowing foreign companies to list yuan-denominated A shares, would not be launched in the near future, Guo said.

Beijing had in 2009 announced it would establish an international board on the Shanghai Stock Exchange, allowing foreign corporate giants such as HSBC Holdings to list A shares. But worries of a market downturn prevented the CSRC from giving the go-ahead, sources said.

Guo dismissed rumours that the plan was shelved due to concerns of market impact, saying the capital pool backed by the Chinese people's massive savings was big enough. "The introduction of the board would concern different laws, accounting rules and supervision problems. It would take time to solve the problems," he said.

While the economy expanded 7.7 per cent in the first nine months of the year, the Shanghai Composite Index lost 5.8 per cent as chronic problems including corruption, insider trading and weak protection for small investors remained untackled.

Guo said he launched investigations after receiving complaints about cadre corruption.

"I've heard rumours that you have to pay 300,000 yuan to invite an IPO division head of CSRC to dinner, and 500,000 yuan to treat an IPO bureau head," he said. "I have probed into it. The finding is most of our staff are clean."