China will impose a 10 per cent tax on foreign equity investors' dividends and banking interest income, amid renewed interest by overseas institutions in mainland shares. The State Administration of Taxation said yesterday that qualified foreign institutional investors (QFII) would be subject to the tax according to the country's Enterprise Income Tax Law. It was the first time that Beijing clarified its position on foreign investors' dividend and interest income since embarking on the QFII scheme in 2003. The administration did not say whether income in the past years would be taxable. At present, mainland mutual funds pay 20 per cent tax on the same income. 'The tax will more or less dent QFIIs' buying interest if they chase long-term returns from companies' profits,' said Zhou Liang, the head of the China investment and advisory division at Thomson Reuters. 'Somehow, it's fair since the domestic companies also pay the tax.' QFIIs are more bullish on the mainland market as fund managers predict the downturn would not last long, according to a Merrill Lynch survey of global fund managers. The number of investors who predicted lower growth over the coming 12 months fell sharply to a net 21 per cent this month, from a net 70 per cent last month, the survey showed. 'Fund manager expectations for Chinese economic growth rose dramatically to their highest levels since 2007, and faint global decoupling hopes now reside solely with China,' said Michael Hartnett, the chief global emerging markets equity strategist at Banc of America Securities-Merrill Lynch Research. UBS Securities bought A shares worth more than 300 million yuan (HK$340.26 million) on Thursday. It spent more than 900 million yuan buying into mainland-listed firms in November last year. Marc Faber, publisher of the Gloom, Boom & Doom report, said yesterday the Shanghai Composite Index might rise 15 per cent before it retreated amid excessive liquidity.