By Xie Fang
The State Administration of Foreign Exchange (SAFE) announced on Monday that it, upon the approval of the State Council, decided to raise the investment quota for qualified foreign institutional investors (QFII) from the current 150 billion U.S. dollars to 300 billion U.S. dollars, the Shanghai Securities Journal reported.
It is the first time in five years that the Chinese government lifts the quota for QFIIs which plan to invest in China's A-share market. Analysts believe that the move sends a positive signal to foreign investors on the further opening-up of the Chinese stock market.
"Foreign investments have been playing an important part in the development of China's A-share market," said a senior analyst from one of China's top 10 securities firms. "This dramatic increase in the investment quota for QFIIs will help push ahead with the internationalization of China's A-share market."
On the other hand, he thinks, the move can also be seen as a response to the increasing demand of foreign investors for more access to the A-share market.
Starting in June last year, several world-leading equity market index compilers including Morgan Stanley Capital International (MSCI), FTSE Russell and S&P Dow Jones have scrambled to include A-share stocks into their flagship indices, which is set to bring more foreign funds to the Chinese stock market.
"The increase in the QFII investment quota is also to satisfy the need of the foreign funds which are intended to put A-share stocks into their investment portfolios," said the analyst.
However, to some analysts, the quota increase is more of a symbolic step than a material move as data from the SAFE shows that as of Dec. 29, 2018, a total of 101.06 billion U.S. dollars in foreign investments were approved by the Chinese authority to flow into the A-share market, which is well below the current quota of 150 billion U.S. dollars.
"Given that the current quota remains sufficient for the inflow of foreign investments, the move is more likely to serve as a positive signal to foreign investors," said Guan Tao, senior fellow at the China Finance 40 Forum, a prominent Beijing-based think tank on economy and finance.
