China lifts quota for foreign investment in shares

[April 05, 2012]  SHANGHAI (AP) -- China has raised its quota for stock investments by foreign institutional investors, in a step toward easing controls on its tightly regulated domestic share markets.

The China Securities Regulatory Commission announced Thursday that it was more than doubling the current quota, by $50 billion, to $80 billion.

Regulators have struggled to stir up interest among investors in the local currency denominated, or "A-share" market, which has languished for years after hitting a peak in 2007.

The qualified foreign institutional investors program is the only legal way for foreign investors to buy shares in the mainstream yuan-denominated market.

The regulator said the decision to increase the quota is meant to "promote opening of the domestic stock market, expand overseas investment channels for the yuan and to meet the needs of foreign investors on the domestic stock market."

The news buoyed Chinese shares, with the benchmark Shanghai Composite Index jumping 1.7 percent to 2,302.24.

"The announcement sends a clear and positive message to international investors that the central government is encouraging further opening up of China's capital markets," Jing Ulrich, JP Morgan's chairwoman for China equities, said in a comment on the policy change.

Still, foreign investment remains a tiny percentage of total investment in Chinese shares. The original quota was about 1 percent of total investment.

The market watchdog also announced a $50 billion increase in the quota for a recently launched program allowing Hong Kong subsidiaries of Chinese securities companies to use yuan funds raised in Hong Kong to invest in Chinese shares and bonds. Originally, the quota was $20 billion.

That program allows only 20 percent of the funds invested to be used to purchase equities, with the remainder going to bonds.

[Associated Press]

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