CSRC mulls higher QFII quotas

The China Securities Regulatory Commission (CSRC) is considering raising the investment quota ceiling for overseas firms operating under the country's Qualified Foreign Institutional Investor (QFII) scheme, the Shanghai Securities News reported Wednesday, citing officials from the commission.

At present, a foreign firm with a QFII license can apply for a maximum quota of $1 billion to invest in the mainland capital market.

News that the CSRC may soon increase QFII quotas underscores regulatory efforts to channel more capital into the illiquid domestic market as well as foreign investors' growing demand to take larger positions in the mainland, say experts.

With many pinning the bearish conditions at the mainland equity market on a lack of liquidity, it makes sense that the CSRC is contemplating strategies which could bring more foreign money into the market, said Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences.

"Due to the yuan's appreciation and recent signals that local equity markets are bottoming out, more and more foreign investors are beginning to look favorably on mainland equities," said Zhou. "This is excellent news for regulators, who have been expanding the QFII scheme quickly over the past year."

In April, the CSRC announced that it would increase the total QFII quota from $50 billion to $80 billion and look into ways to lower entry requirements.

Since 2002 when the QFII scheme launched, $33.57 billion in quotas have been granted to 199 foreign investment firms, according to the CSRC data.

So far, a total of four foreign investors - including Temasek Fullerton Alpha Pte Ltd, Government of Singapore Investment Corporation Pte Ltd, the Hong Kong Monetary Authority and Norges Bank - have reached the current QFII quota ceiling.

Most of the foreign investors applying for QFII quotas above the present limit are sovereign wealth investment fund companies and pension fund managers, said Yuan Gangming, a researcher from the Center for China in the World Economy.

Both Norges Bank, the central bank of Norway, and Qatar Holding LLC are seeking QFII limits of as high as $5 billion, according to local media.