China unveiled new rules on Thursday that would let foreign institutional investors buy more stocks and bonds, and make it easier for them to move money out of the country.
The new policies toward the Qualified Foreign Institutional Investor (QFII) scheme are aimed at “gradually promoting convertibility under the capital account, and expediting cross-broader investment,” the State Administration of Foreign Exchange (SAFE) said in a statement on its website.
Effective immediately, the investment limit for QFII funds would be raised, while the approval procedures are simplified, with funds no longer required to execute their investments within six months of being approved for quota.
At the same time, QFII mutual funds can have subscriptions and redemptions on a daily basis, instead of a weekly basis, increasing fund managers’ access to liquidity and addressing a major complaint.
SAFE, which previously granted individual QFIIs a certain amount of quota on a case by case basis, will now award a “base quota” of up to $5 billion to funds, based on their assets under management.
Investors still need to get approval from Chinese regulators only if their investment exceeds the base quota.
Rules restricting QFIIs from moving capital in and out of China would also be eased, according to the new rules.
The rules shortened the lock-up period on QFII redemptions to three months from 1 year.
However, the amount of money a QFII can repatriate out of China every month must not exceed 20 percent of its assets in the country, the same as in the past.
The announcement also comes at a time when foreign investors have grown increasingly concerned about Beijing’s commitment to opening its financial markets after a series of heavy-handed government interventions in the stock and currency markets.
They are also concerned that Beijing is making it easier for foreign funds to come into the country at a time when domestic companies are struggling to find capital.
The government has also taken a series of steps to make it more difficult for money to move out of the country in recent weeks as funds have evacuated from yuan-denominated assets on concerns that the currency is set to depreciate further.
Ivan Shi, head of research at fund consultancy Z-Ben Advisors, said the new rules may be an attempt to reassure foreign institutional investors.
He added it could also be part of a lobbying campaign from Beijing to get Chinese stocks included in MSCI’s benchmark indexes, which would likely channel billions of dollars into China’s struggling stock markets as funds reallocate portfolios.