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Lift investment limit, official says

By Wang Xiaotian (China Daily)

13:24, May 03, 2012

China should further raise the investment limit on qualified foreign institutional investors and qualified domestic institutional investors to make the yuan easier to convert, said a senior official at the State Administration of Foreign Exchange.

Sun Lujun, director of the capital management department of the administration, said the priority in making the yuan more convertible should be placed on opening up the domestic capital market and individual capital accounts to the outside world.

He made the remarks in an article published in the magazine China Finance on Wednesday.

Sun said Beijing should lower the hurdles foreign investors must cross if they want to gain access to the domestic capital market, allow overseas institutions to raise funds in the Chinese capital market through the launch of an international board, allow Chinese individuals to invest in overseas industries and securities and continue to increase quotas for renminbi qualified foreign institutional investors, or RQFII, which allows them to invest in the mainland using yuan they collected outside China.

In early April, China announced it would raise the QFII quota by $50 billion, taking it to $80 billion. That was the largest such increase seen since the program was introduced in 2002. The limit for RQFII was meanwhile increased by 50 billion yuan ($7.9 billion) from the previous limit of 20 billion yuan.

The China Securities Regulatory Commission said in a statement that it might continue to improve the qualified foreign institutional investor program in order to channel more foreign long-term money into the domestic capital market.

Li Wei, a senior economist at Standard Chartered Bank (China) Ltd, said foreign investors mostly want to have access to the domestic inter-bank and bond markets, and increasing the QFII quotas will not do much to draw in long-term capital.

Li said the case is different, though, for qualified domestic institutional investors.

"An increase in their quotas would be more practical, although the fact that the yuan cannot be freely converted is expected to restrict outbound investment," Li said.

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