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China opens door to overseas funds (2)

(People's Daily Online)

08:20, August 03, 2012

Longer-term effects should be highly considered

The CSRC promulgated the "Provision on Implementation of 'the Portfolio Management of Qualified Foreign Institutional Investors in China'" last Friday, hereinafter referred to as "Provision."

Compared with the former "Information on Implementation of 'the Portfolio Management of Qualified Foreign Institutional Investors in China,'" the "Provision" made a modification on the following contents: reducing qualifications on QFIIs to encourage inflows of foreign long-term funds, meeting the demand of QFIIs to choose more securities dealers and provide operating convenience, allowing the QFIIs to invest in interbank bond market and private placement bonds of medium-sized and small enterprises to expand investment and improving the shareholding ratio of all the overseas investors from 20 percent to 30 percent.

"It certainly will absorb more foreign funds to approve private equity investment institutions to become QFIIs, reduce qualifications of QFIIs and improve shareholding ratio of overseas investors," the banking analyst said.

"Moreover, the overseas investors are also willing to become a QFII. Although loosening the control of QFIIs did not shore up the stock market performance on Monday, its long-term role of good for stock market is undeniable."

The "Provision" pointed out that the operation time of assets management agencies, insurance companies and other institutional investors, including pension and sovereign wealth funds, has been reduced to two years from original five years and the security asset size also dropped from 5 billion U.S. dollars to 500 million U.S. dollars, embodying the encouragement of inflows of long-term foreign funds to China.

The analyst also said that it can attract more foreign funds to allow the QFIIs to invest in interbank bond market and private placement bonds of medium-sized and small enterprises, but is also the reason that China's domestic stock market did not take a turn for the better after the 'Provision' was promulgated.

"After all, Chinese stock market's downward trend and lack of market confidence urged more investors invest in the bond markets. Under current economic conditions, the bond markets are safe and stable and enjoy a gradual rise of earning ratio," said the analyst.

Read the Chinese version at: 6家QFII获批12亿美元额度 松绑“对冲”资本流出, Source: People's Daily Online, Author: Fu Bilian

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