Beijing granted a large amount of quota last month for the scheme that raises offshore yuan to invest in the mainland's bond and stock markets, in an effort to bolster slumbering A shares while encouraging foreigners to hold the local currency.
The State Administration of Foreign Exchange (SAFE) said it approved a combined 15.6 billion yuan (HK$19.6 billion) of renminbi qualified foreign institutional investor (RQFII) quota in May, the biggest amount this year.
It was a clear sign the mainland regulators are trying to speed up capital inflows to underpin the weak market.
Beijing embarked on the RQFII programme in 2011 on a trial basis, allowing Hong Kong subsidiaries of mainland brokerages and fund managers to launch yuan-denominated funds offshore to invest in mainland stocks and bonds.
The initial quota of 70 billion yuan in aggregate was used up earlier this year, before Beijing began to issue fresh quotas in late April.
A total 200 billion yuan of new RQFII quota will be granted in the expanded programme.
The regulators now also allow foreign institutions and Hong Kong subsidiaries of mainland banks and insurers to take part in the expanded scheme.
Beijing has yet to grant RQFII quota to a foreign institution, but several overseas asset managers have reportedly applied.
The Shanghai Composite Index edged down 0.06 per cent to 2,299.25 points yesterday.
The benchmark has gained only 1.3 per cent this year, even though the securities regulator halted new share offerings to shore up investor confidence.
Shenyin Wanguo Securities predicted that the key indicator would fluctuate in the 2,250-2,350 point range.
However, analysts said that the increasing issuance of RQFII quota reflected the regulators' determination to drive up the indicators.
Since Beijing restarted vetting RQFII applications in late April, 21.9 billion yuan had been issued by the end of last month.
SAFE also distributed a combined US$681 million of quota to qualified foreign institutional investors (QFII) last month, up from US$137 million in April.
Under the QFII scheme, foreign institutions raising funds in foreign currencies offshore can convert the money into yuan to invest in A shares.