2011-01-17

China wants more hot money

As long as it goes into the stock market.

Mini-QFII scheme set for trial run to bolster troubled A-share market
fund manager informed about the progress of the so-called mini-QFII (qualified foreign institutional investor) scheme - which allows domestic brokerages and fund houses to raise offshore yuan to invest in mainland bonds and stocks - said about 10 applicants were in discussions with authorities on the launch of the products.


An official with the China Securities Regulatory Commission said a trial programme would be launched soon because the top regulators were determined to attract fresh capital abroad to bolster the troubled A-share market. Beijing had expected to start a trial run of the mini-QFII programme before the end of last year, but the liberalisation was delayed as regulators spent more time working out supervision of the capital flow and the selection of custodian banks.

The overseas subsidiaries of mainland brokerages and fund houses such as Harvest Fund Management would raise yuan funds in Hong Kong and invest 80 per cent of them in mainland bonds, the fund manager said. The remainder could be used to buy locally listed stocks.

Several foreign institutions who have joint-venture brokerages or fund management companies on the mainland will also receive a green light to participate in the mini-QFII programme. The mini-QFII scheme was designed to bolster the yuan's internationalisation as Beijing created an investment option for offshore yuan.
If investors can participate in the A-share market, it makes the yuan more attractive to hold overseas. This is more of a step towards opening the capital account though, and the other side of the reform is the trial program in Wenzhou that allows capital to leave China.

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