China speeds up QFII approvals amid signs of capital outflow

China speeds up QFII approvals amid signs of capital outflow Shanghai: China has since October granted nearly $1 billion in quotas for foreign institutions to invest in the country's capital markets following a five-month hiatus, reflecting Beijing's desire to encourage inbound investment amid signs of a capital outflow.

Combined quotas granted under the Qualified Foreign Institutional Investor (QFII) scheme in 2011 totaled $1.92 billion, the lowest since 2007, partly due to an approval freeze between May and October, according to official data released on Thursday.

Some analysts attributed the temporary suspension to the government's intention to ease pressure on the yuan to appreciate, but the tide changed abruptly in October as market jitters about the global economy prompted some investors to withdraw, weakening the yuan against the dollar in the onshore market.

"Typically when the yuan faces pressure to appreciate, regulators slow or suspend quota approvals," said Howhow Zhang, head of research at Shanghai-based consultancy Z-Ben Advisors. "I think now, because there is a capital outflow, approvals are being accelerated."

In December alone, five foreign institutions including Italian insurer Assicurazioni Generali SpA (GASI.MI) and Spanish bank BBVA SA (BBVA.MC) obtained combined QFII quotas of $500 million, according to the State Administration of Foreign Exchange (SAFE). That compares with $250 million granted in November and $200 million in October.

Zhang said the data reflected the regulator's desire to accelerate QFII approvals.

Newly-appointed China Securities Regulatory Commission (CSRC) Chairman Guo Shuqing said earlier this month that the watchdog would speed up approvals under the QFII scheme.

Under the system for allowing controlled inflows of capital for financial investment, the CSRC grants licenses to qualified institutions but foreign exchange regulator SAFE grants the quotas.

A sister scheme for allowing fund outflows, the Qualified Domestic Institutional Investor (QDII) program, has grown much more rapidly in recent years.

QDII quotas had risen to $74.95 billion as of December 21, up from $68.36 billion at the end of 2010. However, new quotas of about $820 million in the last three months of the year were much smaller than in the first three quarters.

In another sign that Beijing is encouraging inbound investment, China recently published rules allowing the Hong Kong subsidiaries of Chinese brokerages and fund houses to raise offshore yuan to invest domestically, under the Renminbi Qualified Foreign Institutional Investor, or RQFII, program.

The name refers to the fact that such investments are denominated in renminbi.

China launched the QFII scheme in 2003 to allow qualified foreign institutions to buy mainland stocks and bonds, and has so far granted total combined quotas of $21.6 billion.


Bureau Report