In pursuit to cushion the impact of an economic slowdown and its trade war with Washington, Beijing is scraping purchasing cap for approved foreign investors. It is removing the whole quota system for foreign institutional investment thus freeing fund managers to buy up stocks and bonds without a hard limit. Foreign Exchange’s State Administration has declared that a decision has been made to scrap the overall ceiling of $300 Bn on total asset purchases under its qualified foreign institutional investor, or QFII, scheme.
Hereon the foreign institutional investors with the relevant qualifications will only remit China funds to carry out investment in securities in compliance with regulations. The statement was released after markets in Shanghai and Shenzhen had closed. It also mentioned that this move will eventually benefit the foreign investors participating in China’s onshore market.
Stephen Gallo, European head of FX strategy, said that the move appears to be designed to shore up China’s balance of payments as there are global trade tensions and there is an apparent drain on its FX reserves. But the removals of quota does not mean that there will be a drastic change in foreign investment. These efforts are good though to reduce some of the risk in the market caused by the US-China trade negotiations and it is strategic, positive push towards adding liquidity to the financial markets and renewing flow of investment into China.
Launched in 2002, the QFII programme allowed broad access to onshore stocks and bonds limiting participation to an approved list of institutions technically subject to a dollar-denominated cap on total purchases of Chinese assets. The renminbi-denominated cap applied to a parallel “RQFII” programme that was initiated in 2011 was also scrapped.
