Monday marks the fifth anniversary of China's entry to the World Trade Organization (WTO), and the end of the five-year transition period.

Besides an economic boom, China has seen reform and development of its financial market, which is likely to decide the track of the economy in coming years and the degree of China's integration with the rest of the world.

The end of the transition period also means the country is entering the final phase of switching to a free-market economy and that the reform of the capital market may continue with greater force.

The capital market has been dramatically reshaped during the last decade. The B-share market was established, domestic enterprises were allowed to list overseas, foreign investors were permitted to merge with listed companies after they released untradable shares held by the State.

On top of that, the authorities established two schemes qualified foreign institutional investors (QFII) and qualified domestic institutional investors (QDII).

The two schemes are not part of China's commitment to the WTO, but they will probably become the most important tools for promoting the opening-up of the capital market before the country fully opens its capital account.

The QFII scheme formally came into effect on December 1, 2002 under approval from the China Securities Regulatory Commission (CSRC), the People's Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE). Fifty-one overseas institutions have already gained QFII qualification and 41 of them have been granted an investment quota of US$8.25 billion.

On April 13, 2006, the PBOC and the SAFE announced that Chinese qualified institutional investors including banks, fund management companies and insurance firms would be allowed to invest outside China, under given quotas, with the money pooled from their individual clients.

Over 10 financial bodies have been granted QDII status, including Citibank, the China Construction Bank, the Hong Kong and Shanghai Banking Corporation and Bank of China.

Banks holding the QDII licence were granted a total of US$11.1 billion in quotas for overseas investment by the end of September.

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