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Foreign Investors To Find It Easier To Move Money Out Of China

RenminbiChina recently tweaked its qualified foreign institutional investor program (QFII). This is an old and underused channel that used to be the only way foreign investors could use to buy Chinese stocks and bonds.

The rule change was posted on the website of the State Administration of Foreign Exchange (SAFE) and allows participants in the program to have an easier time moving their money out of China. However there are criteria that need to be met with the new rule change which includes moving money out only after the remittance ceiling is raised and a lock-up period of three months is observed. Besides moving money out, QFII participants will be allowed to conduct hedging, which will reduce foreign exchange risks.

This change was done by Beijing in the hope of attracting more foreign investors. Though there are already 287 investors who are allowed to bring money into China's capital market, China will need a lot more if it wants to stay competitive. One of the main obstacles was the difficulty of taking money out of the Chinese market and this rule change makes it easier.

However, some analysts are dismissing this change. They view it as pretty much a symbolic change which will have no major impact other than being cosmetic.

China Trying To Make QFII Program More Attractive

The QFII program was initially introduced when China became part of the World Trade Organization and had foreign investors competing to gain footholds in the country. It set pretty high requirements to invest, though many of the amendments through the years have loosened up entry requirements and other restrictions.

Shao Yu, Oriental Securities' chief economist, views this as a way for the QFII program to avoid being marginalized by the alternatives. In the past, the QFII scheme was the main way to invest in China for foreign investors. However, other pathways are now available, especially with the stock links in Hong Kong. The QFII is noticeably being left behind and Chinese authorities are aware of that. Some financial analysts believe that he lock-up period requirement continues to make the QFII option unattractive to foreign investors.

China Merchants Securities analyst Xie Yaxuan said that most foreign investors found lock up period a hindrance and the removal of the 20 percent monthly cap was good but not good enough to get foreign investors to line-up and start pumping in funds.

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