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China opens door to overseas funds

(People's Daily Online)

08:19, August 03, 2012

As of July 20, the State Administration of Foreign Exchange (SAFE) has approved a total of 1.2 billion U.S. dollars of investment by six qualified foreign institutional investors (QFIIs), according to the data published by SAFE on July 31. In an environment that China's economic growth rate is slowing down and the stock market recorded continuous historical lows, China accelerated deregulation of QFIIs and introduction of overseas funds.

Some analysts said that increasing introduction of overseas funds mainly is in order to hedge against capital outflows. Some media outlets had cited the words of Zhang Ming, vice director with the Laboratory of International Finance of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences, saying "more than 20 billion U.S. dollars of funds flow to foreign countries every month."

Not beneficial to the stock market in the short run

The related data showed that a total of 149 QFIIs were approved to invest nearly 29 billion U.S. dollars in China by July 20.

"Since the beginning of 2012, the supervision department gradually loosened the control of QFIIs to absorb more foreign investment in China," a banking analyst said to the International Finance News.

"On the one hand, the rate of China's economic growth is slowing down this year, leading to the outflows of capital, and both the growth rates of foreign direct investment (FDI) and the concrete foreign capital introduction showed a slowing trend. On the other hand, the domestic stock market of China continues to go down, so the supervision department hopes to shore up confidence by introducing more foreign funds."

However, China's stock market continued to go down on July 31, though most of Asian stock markets closed higher. It is obvious that the China Securities Regulatory Commission (CSRC) did not bring good news for Chinese stock market by loosening the investment environment of QFIIs.

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