China lets foreign sovereigns, central banks exceed $1 billion investment limit

SHANGHAI Sat Dec 15, 2012 10:14am IST

Coal Mining In The Punjab

Coal Mining In The Punjab

In Choa Saidan Shah miners dig coal with crude pick axes and load it onto donkeys to be transported to the surface earning a team of 4 workers around $10 to be split between them.  Slideshow 

SHANGHAI (Reuters) - China's foreign exchange regulator has removed the $1 billion limit for foreign sovereign wealth funds, central banks and monetary authorities buying Chinese assets through the Qualified Institutional Investor Programme (QFII).

The new regulations, published on the website of the State Administration of Foreign Exchange (SAFE), did not specify a new top limit, merely that the funds can apply to invest over $1 billion.

The policy is aimed at sovereign wealth funds like Qatar Holdings and the Hong Kong Monetary Authority, both of which have already been approved to invest up to $1 billion each through QFII.

SAFE will retain the right to approve or deny individual applications on a case-by-base basis.

Chinese regulators have said in the past that facilitating increased foreign investment in Chinese assets will help restore confidence in China's stock markets, which have declined by over 60 percent since November 2007.

But the total amount of foreign money allowed to enter the domestic stock market remains small, and the new rules do not increase it.

Combined foreign investment in China's stock market accounts for only 1 percent of total market capitalization.

The overall net quota for the QFII programme remains at its current $80 billion, of which SAFE has only allocated $36 billion for use by QFII funds as of November 30.

Foreign appetite for Chinese equities has shown some signs of increase in recent months, especially in Hong Kong, but the weak performance of stock-focused QFII funds - and complaints about high fee structures - has dampened appetite. (GRAPHIC: Comparison of QFII fund performances in China link.reuters.com/xun34t)

To drum up additional interest, Chinese regulators, including officials from the Shanghai and Shenzhen stock exchanges, went on an overseas tour in September to advocate for Chinese equities and QFII in particular.

The new regulations also relax restrictions on the ability of funds to remit principal and income from investments, but made no further clarifications as to how China will tax QFII profits, an area of enduring uncertainty for QFII investors.

Chinese stock markets on Friday had their biggest single-day jump since 2009, which some analysts attributed to expectations of further relaxation of rules on foreign investment in stocks.

Others, however, offered alternative explanations for the unusual jump, such as behind-the-scenes share buybacks by state-owned entities trying to engineer a rebound for the end of the year.

(Editing by Michael Perry)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

HCL Tech Results

HCL Tech Results

Q4 dollar revenue disappoints investors, shares fall  Full Article 

Fed Policy

Fed Policy

Fed presses forward with bond buying, cites uptick in inflation.  Full Article 

Q2 Profit Slips

Q2 Profit Slips

Samsung sees tough second half  Full Article 

Chinese Economy

Chinese Economy

China should set lower 2015 GDP growth target of 6.5-7 percent - IMF  Full Article 

Default Imminent

Default Imminent

Argentina fails to reach debt agreement   Full Article 

Economy Reboots

Economy Reboots

U.S. economy back on track with strong second-quarter rebound  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage