China raises investment limit to €61bn

Tue, Apr 10, 2012, 01:00

REFORM IS not just affecting the banks. In an effort to give its flagging capital markets a lift, China has nearly tripled the amount of money that foreign institutions can invest in stocks, bonds and bank deposits to €61 billion.

China’s main stock market index has had a gruesome year, with sentiment blasted by fears of economic slowdown, but restrictions make it difficult to lure foreign capital into the economy.

Beijing keeps a tight rein on capital moving in and out of China, something that Irish investors have often complained about over the years.

The government said it is trying to maintain financial stability, although in recent months, changing circumstances and the slowing economy have made it more open to liberalisation. As it stands, foreigners cannot invest directly in markets here, but they can buy shares through institutions under the Qualified Foreign Institutional Investor (QFII) scheme.

It’s reaching its limit, but the China Securities Regulatory Commission (CSRC) said it was extending the limit from the previous level of €23 billion to “satisfy foreign investors’ investment demands, and move forward in promoting the stable development and opening of the domestic capital markets”, the securities regulator said on its website.

The QFII was introduced in 2003 to make the yuan, which is a non-convertible currency, more international and to reduce reliance on the greenback. China has cut its annual growth target to 7.5 per cent this year, its lowest level in eight years. Beijing hopes that slower growth will give it space to make reforms, although the economy will most likely pick up pace later this year.

“The market’s growing doubts about the prospects for substantial appreciation of the renminbi and the arrival of a new securities regulator, in the form of Guo Shuqing, have together kick-started the prospects for dramatic reforms in China’s financial markets over the next few years,” said Duncan Innes-Kerr, China analyst, Economist Intelligence Unit.

“This latest move will be welcomed by foreign investors keen to enter China’s markets, but it may only be a small step in comparison with things to come,” he said.