Regulators nearly double quota for QFII program

The nation's securities regulator, central bank and foreign exchange manager announced on Friday an expansion in the quota for the qualified foreign institutional investor program to $150 billion from $80 billion.

Also, the pilot program for the renminbi QFII or RQFII will now include Singapore and London, with Hong Kong and Taiwan having joined the plan, the China Securities Regulatory Commission said.

"The current investment position of foreign institutions is stable", and an increasing number of investors have shown an interest in expanding their quotas, a CSRC spokesman said.

The People's Bank of China and the State Administration of Foreign Exchange allowed the QFII quota to increase to $80 billion in April 2012, from the original $30 billion ceiling established when the program was launched in 2002.

The RQFII quota was set at 270 billion yuan ($44 billion) in November.

The value of shares held by foreign institutional investors stands at 1.6 percent of the A-share market, according to the CSRC.

Ahead of the Friday announcement, the Shanghai Composite Index surged by 3.2 percent on Thursday, the largest daily rise in seven months.

On June 25, the benchmark stock index slumped to a three-year low of 1849.65 points, as the market was shaken by record interbank rates and fears of a looming financial crisis.

"It is likely that foreign capital has found a good time to buy (shares in large amounts)" at ideal prices, said Li Long, an analyst at China Securities Co Ltd.

To some extent, overseas funds halted the equity market's decline and perhaps even gave the index a boost, said Li.

Continued expansion of the foreign investment quota in the A-share market can strengthen the position of institutional investors and increase the supply of long-term capital. These trends, in turn, could accelerate the opening up of China's capital markets, the CSRC spokesman said.

So far this year, 22 foreign investment institutions have won approval for QFII quotas of $6 billion, pushing up the total number of QFII investors to 229.

The approved quota has reached $43.46 billion since the debut of the program.

In 2012, regulators approved 72 QFIIs' requests for quotas of $15.8 billion.

"So far this year, net inflows of foreign capital through the QFII program have reached 60 billion yuan," the spokesman said.

For the RQFII program, the CSRC has approved 11 new investors this year, and their quotas totaled 37.9 billion yuan.

The total approved quota under this program is up to 104.9 billion yuan.

In June, the mainland and Taiwan signed an agreement, which clarified that Taiwan-based financial institutions can invest in mainland capital markets under the RQFII program.

Prior to that agreement, Hong Kong was the only region involved in the pilot program.

The further expansion of the RQFII program to Singapore and London is based on the fast growth of their offshore yuan markets, as well as stronger demand for the Chinese currency and its accelerating internationalization, according to analysts.

"The new pilot programs in Taiwan, Singapore and London will follow the same regulations as in Hong Kong," an official at the CSRC's fund management department said.

"Foreign investors maintain a strong interest in investing in the mainland capital market," the official said. "As the proportion of foreign capital in the A-share market is still very low, it has strong potential to invest more funds from overseas," he said.