China raises QFII quota by $50bn to $80bn

Chinese authorities more than double the investment quota available to approved foreign institutional investors wanting to invest directly into China’s restricted financial markets

The People’s Bank of China (PBoC), the State Administration of Foreign Exchange (Safe) and the China Securities Regulatory Commission (CSRC) have secured approval from China’s State Council to raise the quota for qualified foreign institutional investors (QFII) by $50 billion. QFII provides access to Chinese bond, equity and bank deposit markets.

The increase in quota should enable reserves managers and official sector fund managers to invest more of their assets into Chinese markets in the years ahead. The QFII quota was previously set at $30 billion but will now rise to $80 billion.

As China’s role in global trade has grown dramatically during the past 20 years, central banks have increasingly viewed renminbi holdings as more relevant to their foreign exchange positions. However, tight restrictions associated with renminbi investments results in liquidity being limited. Access to the onshore market has also proven tricky to secure.

“Many of the reserves managers and sovereign funds that have already secured QFII quotas had hoped they would get bigger quotas,” said Gary Smith, head of official institutions at BNP Paribas Investment Partners. “This announced increase in overall QFII quota may mean these individual managers will secure more quota moving forwards.”

QFII quotas were last raised in 2007 from $10 billion to $ 30 billion as a result of the Second China-US Strategic and Economic Dialogue.

The CSRC said QFII licences had been granted to 158 institutions from 23 countries and regions, among which there are 82 asset management companies, 11 insurance companies, 29 sovereign funds, pension funds or donation funds, 23 commercial banks and 13 securities companies.

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