QFII quotas resume as capital flows out

SHANGHAI - China resumed granting new quotas in October for foreign asset managers to invest in its capital markets after a five-month hiatus, according to an announcement on Thursday by the State Administration of Foreign Exchange (SAFE).

The announcement came on the heels of figures indicating that capital abruptly flowed overseas during the fourth quarter.

SAFE said that $950 million in new quotas under the QFII program were granted from Oct 19 to Dec 21. Approvals had been suspended since May.

"Approval of new QFII quotas temporarily stopped because the surplus in international payments surged earlier this year. That put pressure on inflation and (pushed) the yuan to appreciate," said Huang Wujun, an analyst with CCID Consulting in Beijing.

QFII grants "resumed after capital abruptly began to flow out of the country in October and the pressure on inflation and the yuan eased", Huang said.

As of Dec 21, new QFII quotas granted this year stood at $1.92 billion, about 40 percent less than in 2010 and the lowest since 2007, according to SAFE data. The approval freeze came after the capital-account surplus doubled in the first half to $183.9 billion, as capital inflows, including some that analysts believe represented speculative capital, accelerated. As of the third quarter, the surplus was $229.8 billion.