China Passes Reform Policy That Removes Limits On Onshore Foreign Investments

China Foreign Investment Policy
A clerk counts Chinese 100 yuan banknotes at a branch of a foreign bank in Beijing (Photo: Reuters / Kim Kyung-Hoon)

In its latest effort to open up its financial sector to more foreign investors, China's foreign exchange regulator has announced that it will be lifting the ceiling for investments made to its mainland capital markets.

The move will be applicable to all foreign institutions currently investing in onshore markets under the country's two foreign investment schemes.

China's State Administration of Foreign Exchange announced on Tuesday that it already received approval for the measure from the State Council. Following the approval, the regulator announced on its website that foreign institutions can now invest in the country's bond and stock markets without limits on the amount of money they put in.

The measure will effectively remove the maximum investment amount that was previously imposed on foreign institutions under the country's two foreign investment schemes, namely the Qualified Foreign Institutional Investor scheme and the RMB Qualified Foreign Institutional Investor scheme.

The two major schemes were originally introduced in the last decade.  The Qualified Foreign Institutional Investor scheme was first established in 2002, which was then followed by the introduction of the RMB scheme in 2011.

The two schemes were seen as the most significant policy ever imposed by China, marking the official opening of its domestic markets to foreign investors.

Since the establishment of the schemes, more than 400 foreign institutional investors from over 31 countries have participated in the trading and investment of domestic stocks and bonds. This resulted in the injection of billions of dollars of new capital, which has significantly boosted the country's economic output.

In addition to the removal of the investment limits, the State Administration of Foreign Exchange also revealed that it is currently working to get approval to remove related administrative licensing for foreign investors. China's cabinet is apparently still reviewing the regulator's proposal.

The regulator did mention that they will immediately be publishing the results of the review once it becomes available. Wang Chunying, a spokeswoman for the agency, stated that they are looking into passing additional reforms to further open up China's financial sector to interested foreign parties. Wang also openly invited qualified institutions from all over the world to invest in the country's domestic securities through its more accessible schemes.

The market analyst has forecasted that overall foreign investments in China's A-share and bond markets may increase by more than 10 percent in the next few years thanks to the new measures. China does expect an influx of new capital from foreign sources, especially given the global demand for access to the country's financial markets.

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