Chinese regulators expanded a program allowing institutions to raise yuan offshore for investment in China, a step that moves the nation closer to a freely traded currency and may bolster confidence in the stock market.
Financial institutions registered in Hong Kong and the Hong Kong units of Chinese banks and insurers will be allowed to join units of Chinese brokerages and fund-management firms in the Renminbi Qualified Foreign Institutional Investors (RQFII) program, according to a statement posted on the China Securities Regulatory Commission’s (CSRC) Web site on Wednesday.
The regulator also expanded the range of products participants can invest in beyond exchange-traded stock funds and bonds.
Standard Chartered PLC yesterday said it would be “very interested” in participating in the program.
The expansion comes as legislators meet this week at the annual National People’s Congress in Beijing, during which a new generation of Chinese Communist Party leaders headed by Xi Jinping (習近平) assumes oversight of the world’s second-largest economy.
The party pledged in November last year to make the exchange rate more market-based and promote freer movement of capital in and out of the country for investment purposes.
“The move to open channels for foreign portfolio investors will benefit the Mainland market, bringing in more demand for equities and bonds,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, wrote in a report yesterday.
“It will put some more upward pressure” on yuan and offshore yuan rates, he wrote.
China approved the RQFII program in December 2011. A total of 27 offshore units had been awarded 70 billion yuan (US$11.2 billion) of quota to invest, according to the CSRC statement.
Of that amount, 27 billion yuan had been invested in bonds, and 43 billion yuan in exchange-traded funds, the CSRC said.
Participants will now be able to invest in stock-index futures, where before they were limited to equities and bonds, the statement said.
RQFII funds will also be able to take part in initial public offerings, convertible bond sales and share placements, according to the CSRC.
“The amendment relaxes the RQFII asset allocation restriction, which allows institutions to decide on types of product on their own depending on market conditions,” the regulator said. “The CSRC will continue to expand the scale of the trial to attract more long-term foreign funds, to ensure the reform and opening of capital markets and its steady development.”
Allowing more participants into the RQFII program increases the prospect of more international inflows that will bolster the nation’s stock market.
The Shanghai Composite Index has fallen 4.7 percent from a nine-month high reached on Feb. 6 as the government moved to enforce curbs on property ownership.