Foreign cash is expected to play a more important role in China's capital market as the country's stock reform goes deeper.

 

China said yesterday that it would more than double the amount ABN AMRO can invest in its main financial markets. The announcement was posted on the website of its foreign exchange watchdog, the State Administration of Foreign Exchange.

 

The Dutch bank was given an additional US$100 million in investment quotas, bringing its total to US$175 million, the eleventh largest allocation under the Qualified Foreign Institutional Investment (QFII) scheme. The biggest quota holder, Switzerland's UBS AG has US$800 million in quotas.

 

It brings the combined QFII investment quotas that Beijing has granted to US$5.745 billion, shared between 27 companies. Another four firms have been given initial approval to join the scheme but are awaiting their quotas.

 

"It is predictable that the government will continue to increase the quotas, and at the same time, lower restrictions for QFII investors," Zuo Xiaolei, chief economist with China Galaxy Securities, told China Daily.

 

"Currently, due to the limited quotas, QFII's role is only bringing new investment concepts and guidelines in selecting potentially profitable stocks. However, as the combined quotas increase, QFII's actual influence will surely increase in the market."

 

The increase is the latest in a series of moves by China to widen access for foreign institutional investors in a bid to boost the nation's sagging stock markets.

 

On Tuesday, the China Government Securities Depository Trust and Clearing Co Ltd said it was ready to accept applications for foreign strategic investors to open domestic currency A-share accounts, paving the way for them to directly buy shares in Chinese-listed firms for the first time.

 

"The move is aimed at paving the way for overseas investors to invest in China's listed companies," the official agency said in a statement published on its website.

 

Foreign investors had been waiting for details after government departments issued the rules on January 5 permitting them to take strategic stakes in publicly listed firms.

 

Starting from January 31, overseas investors are allowed to buy exchange-traded A shares provided they acquire at least a 10 percent stake and hold the stock for three years.

 

China's shares rose 1 percent yesterday and the benchmark Shanghai composite index finished the day at 1299.166 points, continuing a buying trend that began in mid-December, when the market turned after almost touching 1,100.

 

The Ministry of Finance also announced yesterday new accounting rules that will tighten supervision on corporate practices, including supervision on assets appreciation, aimed at improving corporate transparency.

 

The rules will be implemented in listed firms from the start of next year and are the outcome of three years of painstaking efforts to internationalise Chinese accounting standards, the Shanghai Securities News said.

 

(China Daily February 16, 2006)