China Encourages Capital Inflows through Expedited QFII

Foreign institutions found it easier to gain investment approval in last 3 months

China has broadened approvals for its Qualified Foreign Institutional Investor program since October, reversing a previous approval freeze that held investors at bay from May to October; according to official data that were released Thursday.

Reuters reported that combined quotas granted under the QFII program in 2011 totaled $1.92 billion, the lowest since 2007, partly due to that approval freeze. However, since October when the freeze was lifted, Beijing has allowed approval of nearly $1 billion in quotas for foreign institutions to invest in the country's capital markets.

Analysts believe that the change in policy was the result of capital outflows as some investors grew more concerned about the state of the markets and withdrew funds. That led to a weakening of the yuan against the dollar in the onshore market.

Howhow Zhang, head of research at Shanghai-based consultancy Z-Ben Advisors, was quoted saying, "Typically when the yuan faces pressure to appreciate, regulators slow or suspend quota approvals. I think now, because there is a capital outflow, approvals are being accelerated."

Just in December, five foreign companies, including Italian insurer Assicurazioni Generali and Spanish bank BBVA were granted combined QFII quotas of $500 million, according to the State Administration of Foreign Exchange. In October a total of $200 million was granted, and in November $250 million.

Guo Shuqing, newly appointed chairman of the China Securities Regulatory Commission, said earlier in the month that commission would expedite approvals. It grants licenses to qualified institutions under the system for allowing controlled inflows of capital for financial investment, but foreign exchange regulator SAFE grants the quotas themselves.

Since the QFII program was launched in 2003, permitting qualified foreign investors to purchase mainland stocks and bonds, it has granted total combined quotas of $21.6 billion.

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