Shanghai, December 15 – China’s foreign exchange regulator has removed the $1bn limit for foreign sovereign wealth funds, central banks and monetary authorities buying Chinese assets through the Qualified Institutional Investor Programme (QFII).

The new regulations, published on the website of the State Administration of Foreign Exchange, did not specify a new top limit, merely that the funds can apply to invest over $1bn.

 

  The policy is aimed at sovereign wealth funds such as Qatar Holding and the Hong Kong Monetary Authority, both of which have already been approved to invest up to $1bn each through QFII.

 

  SAFE will retain the right to approve or deny individual applications on a case-by-base basis.

 

  Chinese regulators have said in the past that facilitating increased foreign investment in Chinese assets will help restore confidence in

China’s stock markets, which have declined by over 60 per cent since November 2007.

 

  However the total amount of foreign money allowed to enter the domestic stock market remains small, and the new rules do not increase it.

 

  Combined foreign investment in China’s stock market accounts for only 1 per cent of total market capitalisation.

The overall net quota for the QFII programme remains at its current $80bn, of which SAFE has only allocated $36bn for use by QFII funds as of November 30.

  

  The new regulations also relax restrictions on the ability of funds to remit principal and income from investments, but made no further clarifications as to how China will tax QFII profits, an area of enduring uncertainty for QFII investors.

Chinese stock markets on Friday had their biggest single-day jump since 2009, which some analysts attributed to expectations of further relaxation of rules on foreign investment in stocks.

 

  Others, however, offered alternative explanations for the unusual jump, such as behind-the-scenes share buybacks by state-owned entities trying to engineer a rebound for the end of the year.

Reference: http://www.ft.com/intl/cms/s/0/b027d3ee-46a9-11e2-8b2f-00144feab49a.html#axzz2FMpeRWs4