China scrapped a ceiling on investments by overseas sovereign wealth funds and central banks in its capital markets, part of government efforts to encourage long-term foreign ownership and shore up slumping equities.
Sovereign wealth funds, central banks and monetary authorities can now exceed the US$1 billion limit that still applies to other qualified foreign institutional investors, according to revised regulations posted on Friday on the Chinese State Administration of Foreign Exchange’s Web site.
The Shanghai Composite Index jumped the most since October, 2009, on Friday after the head of the Hong Kong Monetary Authority said on Thursday that China may relax or abolish a rule that requires renminbi-qualified foreign institutional investors (QFII) to keep most of their funds in bonds.
The China Securities Regulatory Commission has cut trading fees, pushed companies to increase dividends and allowed trust companies to buy equities since Guo Shuqing (郭樹清) took over as chairman last year.
Introducing more long-term funds from abroad will help improve market confidence, promote stable growth in capital markets and provide “robust” investment returns to domestic investors, the regulator said in May, a month after the government more than doubled the total quota for QFIIs to US$80 billion from US$30 billion.
The benchmark Shanghai Composite has lost 2.2 percent this year, while the MSCI China Index of mostly Hong Kong-traded shares, open to overseas investors, has gained 18 percent as US bond purchases spurred foreign funds to pour money into emerging markets.
QFIIs can repatriate their principal and investment returns after a lock-up period ends, though the monthly net remittances cannot exceed 20 percent of their total onshore assets as of the previous year, according to Friday’s rules.
Open-ended China funds can remit funds on a weekly basis under the new regulation, compared with monthly in the previous version announced in 2009.
The Hong Kong Monetary Authority, Norges Bank, Government of Singapore Investment Corp and Temasek Holdings Pte’s Fullerton Fund Management Co have all reached the US$1 billion limit as of Nov. 30, with QFIIs’ approved quotas totaling US$36.04 billion, according to SAFE, the currency regulator.
Foreign investors can only invest in capital markets through QFIIs.
Qatar’s sovereign wealth fund was applying for a QFII license and a US$5 billion quota to invest in China, the China Securities Journal said on its Web site in June, citing Qatari Energy and Industry Minister Mohammed bin Saleh al-Sada.