China's foreign exchange regulator granted three qualified foreign institutional investors (QFIIs) additional investment quotas Wednesday, saying such institutions have become an important force in the domestic capital market.

That brought the total investment quotas of the QFII scheme, which allows foreign investors to trade US$500 billion of China's A shares and bonds, to US$2.725 billion, according to the State Administration of Foreign Exchange (SAFE).

Since the scheme was announced at the end of 2002, 20 overseas institutions have won a QFII licence, and 17 of them have applied for an investment quota and been approved.

"Despite the ups and downs of the securities market, QFIIs have been, during the past year or so, active with investing," the SAFE said.

"The proportion of securities investment in all the funds remitted in climbed gradually, while the proportion of bank deposits declined steadily. Qualified foreign institutional investors are gradually becoming an important force in China's securities market," it said.

QFIIs remitted a combined US$1.795 billion into the country as of the end of August, more than 10 billion yuan (US$1.2 billion) of which has been put in portfolio investments rather than bank deposits, SAFE said.

More than half of the investments went to the A-share market.

The commission said overseas investors have shown a considerable level of interest in the QFII scheme. About 10 more institutions are applying for a licence while more than half of those already in the market have applied for additional investment quotas.

SAFE granted UBS Limited, Citigroup Global Markets Limited and Nikko Asset Management Co Ltd each an additional US$200 million quota yesterday.

The reasons it has not approved other QFIIs' quota expansion applications, the commission said, were that most of them are relatively new in the market, that some have not efficiently used the quotas granted, and that some needed further improvements in areas such as personnel preparation.

(China Daily September 16, 2004)