China seeks more foreign investment

SHANGAI - Reuters

Businessmen walk on the Bund near the Huangpu River in front of the financial district of Pudong in Shanghai, China. REUTERS photo

China has since October granted nearly $1 billion in quotas for foreign institutions to invest in the country’s capital markets following a five-month hiatus, reflecting Beijing’s desire to encourage inbound investment amid signs of a capital outflow.

Combined quotas granted under the Qualified Foreign Institutional Investor (QFII) scheme in 2011 totalled $1.92 billion, the lowest since 2007, partly due to an approval freeze between May and October, according to official data released yesterday.

Some analysts attributed the temporary suspension to the government’s intention to ease pressure on the yuan to appreciate, but the tide changed abruptly in October as market jitters about the global economy prompted some investors to withdraw, weakening the yuan against the dollar in the onshore market.

Quotas suspended

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

In December alone, five foreign institutions including Italian insurer Assicurazioni Generali and Spanish bank BBVA obtained combined QFII quotas of $500 million, according to the State Administration of Foreign Exchange (SAFE). That compares with $250 million granted in November and $200 million in October.

Zhang said the data reflected the regulator’s desire to accelerate QFII approvals.

Newly-appointed China Securities Regulatory Commission (CSRC) Chairman Guo Shuqing said earlier this month that the watchdog would speed up approvals under the QFII scheme.

Under the system for allowing controlled inflows of capital for financial investment, the CSRC grants licenses to qualified institutions but foreign exchange regulator SAFE grants the quotas.
A sister scheme for allowing fund outflows, the Qualified Domestic Institutional Investor (QDII) program, has grown much more rapidly in recent years.