China to scrap foreign investment quotas on stock, bond markets

SHANGHAI - China's foreign exchange regulator said on Tuesday that it had decided to scrap quota restrictions on two major inbound investment schemes, as a weakening yuan and rising outflows prompt Beijing to seek to attract more foreign capital.

It said the move would"make it much more convenient for overseas investors to participate in China's domestic financial markets, making China's bond and stock markets more broadly accepted by international markets". Inflows could also help bolster China's balance of payments, as some analysts fear the country is slipping dangerously towards twin deficits in its fiscal and current accounts.

China in January doubled the QFII quota to $300 billion, but only $111.4 billion of the limit had been used by foreign investors by the end of August. China introduced the QFII scheme in 2002 and RQFII in 2011 as part of efforts to encourage foreign participation in its financial markets. But the channels have become increasingly overshadowed by the Stock Connect and Bond Connect schemes, which allow overseas investors to access China's onshore markets with no quotas.

Eugenie Shen, head of asset management group at Asifma, said that ending quotas was a"good way to preserve the attractiveness of the QFII and RQFII channels", noting that the schemes offered a broader range of investable securities than through Stock Connect.

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