The China Securities Regulatory Commission (CSRC), China's securities regulator, is considering allowing more foreign investors to enter the mainland's stock and bond markets, by easing restrictions on the country's Qualified Foreign Institutional Investor (QFII) scheme, the only channel for foreign investors to access the country's capital market, China Securities Journal reported.

This news, which the CSRC has yet to officially comment on, comes as the country moves to open the domestic capital market to more overseas investors. The nation's financial regulators upped the total QFII quota from $30 billion to $80 billion on April 3. 

Under the current rules, foreign investors with QFII quotas are required to invest at least 50 percent of their assets in mainland stocks. Regulators may soon scrap this restriction though, according to the newspaper, citing a source from the CSRC. 

China launched its QFII scheme in 2003 with the aim of steering foreign investors into the domestic stock market, rather than toward bonds or futures, while still maintaining control on capital inflows from abroad.

With this goal in mind, the regulators established the current minimum stock holding requirement, Dong Dengxin, director of the Financial Securities Institute at the Wuhan University of Science and Technology, told the Global Times.

Over the past two years though, mounting volatility at China's bourses has inevitably lowered foreign investors' willingness to channel their capital into domestic stocks, Dong said.

Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Science, offered data to show that QFII quota holders currently account for just 1.1 percent of the overall capital in the mainland stock market; much lower than South Korea and Japan, where foreign investors hold between 25 percent and 40 percent of local capital.

"If the CSRC abolishes the mandatory stock holding requirement for QFII scheme participants, it will be yet another indicator that regulators are eager to bring more foreign capital into the country," Zhou explained.

Source:Global Times