China has underscored its intention to open up the country's
financial markets by tripling the investment quota of qualified
foreign institutional investors (QFII) from 10 billion U.S. dollars
to 30 billion U.S. dollars.
The announcement from the State Administration of Foreign
Exchange (SAFE) came ahead of the 18th U.S.-China Joint Commission
on Commerce and Trade and the third Sino-U.S. Strategic Economic
Dialogue, which are to open on Tuesday and Wednesday,
respectively.
This expansion was the second enlargement of the QFII program,
launched in 2002 with a quota ceiling of 4 billion U.S. dollars on
a trial basis.
The previous expansion, in 2005, was 6 billion U.S. dollars.
However, no foreign institutional investors have acquired any new
quotas since February, when the then 10-billion-dollar quota was
running low.
Shang Fulin, chairman of the China Securities Regulatory
Commission, told reporters in October that raising the QFII quota
was a common understanding reached at the second Sino-US Strategic
Economic Dialogue.
The SAFE said it would "decide the tempo" of quota issues in
line with China's international payments and the development of the
domestic stock market.
"Eligible overseas medium- and long-term investment will be
encouraged to invest in China's capital market," it said.
Reviewing the performance of QFII funds over the past five
years, the SAFE said that the system had facilitated a
transformation in Chinese investors' sophistication, improved risk
management, strengthened the global clout of Chinese capital
markets and helped optimize corporate governance.
The QFIIs, described by the SAFE as "significant institutional
investors", numbered 49. Their aggregate market capitalization was
nearly 200 billion yuan (about 27.02 billion U.S. dollars).
Industry analysts said the government had previously been
reluctant to raise the QFII quota, both for fear of sparking
currency appreciation and concern that the domestic stock markets
were near bubble territory.
Separately from the SAFE announcement, Liu Mingkang, chairman of
the China Banking Regulatory Commission, played down fears of
overheating in comments made at an annual conference sponsored by
Caijing Magazine in Beijing Monday.
"The benchmark Shanghai index has more than tripled from 2003 to
this November, which is still small compared with other BRIC
[Brazil, Russia, India, China] nations. Russian stocks rose nearly
631 percent, Brazilian stocks, 576 percent and Indian stocks, 596
percent," he said.
To promote steady development of the financial markets, the SAFE
also said that it would expand channels for local residents to
invest abroad and raise the investment quota for qualified domestic
institutional investors (QDII).
"We support more eligible local financial institutions being
able to provide more diversified products for domestic investors,
enhance their risk management and establish new advantages in
global competition," said the SAFE in a statement.
As of end-September, all QDIIs -- including banks, funds,
insurers and securities dealers -- had acquired investment quotas
of 42.17 billion U.S. dollars, with an actual outflow of 10.86
billion U.S. dollars.
The benchmark yuan-U.S. dollar exchange rate hit a new high of
7.3872 on Nov. 27, for a cumulative appreciation of nearly 11
percent since China discontinued the peg to the greenback in July
2005.
China's central bank governor, Zhou Xiaochuan, said on Nov. 18
that if necessary, the nation would consider widening the yuan's
trading band.
(Xinhua News Agency December 10, 2007)
