China steps up opening of markets with tenfold boost to foreign investors

Beijing steps up efforts to open capital markets by increasing quota for buyers abroad, causing stocks to surge in Hong Kong and on mainland

PUBLISHED : Monday, 14 January, 2013, 11:31am
UPDATED : Tuesday, 15 January, 2013, 4:35am

Hong Kong and mainland stocks jumped yesterday as the nation's securities regulator said the quota for foreign investments in the mainland's financial markets could rise by up to 10 times.

The announcement by China Securities Regulatory Commission chairman Guo Shuqing, coming on the heels of the central bank's statement that work was on to encourage outbound investment, was seen as further proof that Beijing was intensifying efforts to open up the capital markets.

The Shanghai stock index rose more than 3 per cent, the biggest one-day gain in nearly a month, while the Hang Seng Index gained 0.64 per cent on the news.

The Hang Seng China Enterprises Index, which tracks stocks of companies incorporated on the mainland but listed in Hong Kong, rose 1.36 per cent.

Speaking at the Asia Financial Forum in Hong Kong yesterday, Guo said the quota for the original dollar-denominated Qualified Foreign Institutional Investment (QFII) scheme and the renminbi-denominated QFII, or RQFII - the two schemes that allow overseas institutional investors to buy stocks and bonds on the mainland - could go up by nine to 10 times.

The two schemes account for up to 1.6 per cent of the funds invested in the mainland's yuandenominated A shares.

Guo's statement followed the People's Bank of China's announcement on Friday that preparations were under way for trials of the qualified domestic individual investor, or QDII2, scheme.

That scheme is part of a major initiative this year to increase outbound investment by the private sector.

Beijing may also allow individual and non-Chinese institutional investors to join the RQFII - which channels offshore renminbi deposits back into the mainland - in the next phase of expansion, Guo said.

The programme is currently open only to Hong Kong units of mainland financial institutions.

Professor Chan Ka-keung, the secretary for financial services and the treasury, speaking at a press conference after the forum, said plans to expand RQFII to include individual investors were still at a preliminary stage.

Beijing awarded nearly US$16 billion of quotas to foreign securities investors last year, equivalent to the total granted during the previous six years, as Beijing began to accelerate the opening up of its capital markets.

Total quotas for QFII, started in 2003, reached US$37.4 billion at the end of last year.

Guo said China would expand the foreign-exchange quota under the QFII programme, the main route to China's capital markets, once the current allotment of US$80 million was filled.

Beijing started the RQFII at the end of 2011 with an initial quota of 20 billion yuan (HK$24.7 billion), rising to 70 billion yuan last year, allowing foreign investors to use offshore yuan to buy into mainland securities.

Another speaker at the forum was Lawrence Summers, a former economics adviser to US President Barack Obama. He said the yuan was no longer undervalued as it was five years ago.